UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10/A
(Amendment No. 2)
GENERAL
FORM FOR REGISTRATION OF SECURITIES
Pursuant
to Section 12(b) or (g) of The Securities Exchange Act of 1934
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YAKUN
INTERNATIONAL INVESTMENT AND HOLDING GROUP
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(Exact
name of registrant as specified in its charter)
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NEVADA
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33-1176182
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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Suite 1515, 1501 Broadway, New York, NY
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10036
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s
telephone number, including area code
(212) 324-1876
Securities
to be registered pursuant to Section 12(b) of the Act:
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Title
of each class
to
be so registered
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Name
of each exchange on which
each
class is to be registered
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Securities to be registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001 per share
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Emerging Growth Company
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If an emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
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TABLE
OF CONTENTS
Use
of Certain Defined Terms
Except
where the context otherwise requires and for the purposes of this report only:
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the
“Company,” “PBG, “we,” “us,” and “our” refer to the registrant, Yakun International
Investment and Holding Group, a Nevada corporation, and its wholly-owned subsidiary, PBG Water Solutions International, Inc.,
a Nevada corporation, including its predecessor, PBG Water Solutions International, Inc., a Delaware corporation which merged
into the Nevada PBG on October 18, 2017;
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“Exchange
Act” refers to the Securities Exchange Act of 1934, as amended;
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“PRC,”
“China,” and “Chinese,” refer to the People’s Republic of China (excluding Hong Kong and Taiwan);
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“Securities
Act” refers to the Securities Act of 1933, as amended; and
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“US
dollars,” “dollars” and “$” refer to the legal currency
of the United States.
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ITEM
1. BUSINESS.
On
January 15, 2018, the registrant acquired all of the issued and outstanding shares of the capital stock of PBG Water International
Solutions, Inc. a Nevada corporation (“PBG”). PBG was organized to explore the market in the United States for wastewater
treatment solutions and subsequently expanded its focus to markets outside the United States. On April 3, 2017, PBG entered into
a License and Supply Agreement (the “License Agreement”) with Beijing QHY Environment S&T Co. Ltd., a corporation
organized under the laws of the People’s Republic of China (the “Licensor”), pursuant to which PBG was granted
the exclusive right to 21 patents and related technologies related to wastewater treatment solutions.
The
principal stockholders of PBG desire to access the US capital markets to obtain funds to initiate operations in the United States
and complete such contracts as it may enter.
Organizational
History
We
were incorporated in the state of Nevada on October 16, 2007 under the name Rhino Productions, Inc. On September 13, 2011, we
consummated a Share Exchange Agreement with the shareholders of Vast Glory Holdings Limited, pursuant to which we acquired 100%
of the outstanding capital stock of Vast Glory in exchange for approximately 68% of our issued and outstanding capital stock on
a fully-diluted basis. At the time of the acquisition, Vast Glory, through a series of wholly-owned subsidiaries, controlled the
operations of and was entitled to receive the pre-tax profits of its variable interest entity, Changchun Decens Foods Co., Ltd.
(“Decens Foods”), a PRC company. Thus, as a result of the acquisition of Vast Glory, we acquired the economic benefits
of the operations of Decens Foods.
Effective
December 14, 2011, we changed our corporate name to Yakun International and Investment Group.
In
July 2014, we filed a Form 15 and elected to cease filing under the Exchange Act. Subsequently, on July 23, 2014, we entered into
an agreement with Decens Foods and its shareholders relinquishing our interests in Decens Foods to its shareholders in China.
Concurrently, we disposed of our interest in Vast Glory and hence, the entities owned by it. Consequently, as of July 31, 2014,
we were once again a corporation with no business and minimal or nominal assets.
On
January 15, 2018, we acquired all of the issued and outstanding shares of the capital stock of PBG in exchange for 46,839,439
shares of common stock and 19,000 shares of Series A Convertible Preferred Stock (“Series A Preferred Stock”) pursuant
to an Exchange Agreement dated as of November 17, 2017 (The “Exchange Agreement”) with the former stockholders of
PBG. Each share of Series A Preferred Stock was convertible into 1,000 shares of common stock and were so converted on April 18,
2018. PBG was the successor by merger to PBG Water International Solutions, Inc. a Delaware corporation which had been formed
on August 4, 2016.
In
addition to our acquisition of PBG, in December 2017 we formed QHY Water Solutions International Corp. a Nevada corporation (“QHY”).
QHY owns 51% of the capital stock of QHY New Zealand LLC. A Nevada limited liability company, and QHY Oceania S & T Co., Ltd.,
a New Zealand company.
As
a result of the disposition of Decens Foods, the acquisition of PBG and the formation of the subsidiaries mentioned above, our
organizational structure is as follows:
The
acquisition of PBG was accounted for as a “reverse acquisition”, whereby PBG is the continuing entity for financial
reporting purposes and was deemed, for accounting purposes, to be the acquirer of our company. Although we legally acquired
PBG, in accordance with the applicable accounting guidance for accounting for a reverse acquisition, PBG’s historical financial
statements are now the financial statements of the registrant and the assets and liabilities of Yakun have been brought forward
at their historical book value and no goodwill has been recognized.
As
a result of the filing of this Registration Statement, we have become subject to all of the reporting obligations imposed by Section
13(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Business
Overview
On
April 3, 2017, we entered into a License and Supply Agreement (the “License Agreement”) with Beijing QHY Environment
S&T Co. Ltd. and Mr. Mao Xu, pursuant to which we acquired the exclusive right to 21 patents and related technologies for
the treatment of wastewater. The License Agreement was amended in certain respects on June 22, 2017. The patents subject to the
License as amended include two international patents and 19 Chinese national patents covering a variety of compositions, processes
and equipment which can be used to treat wastewater. The agreement grants us the worldwide exclusive right to use the technologies
which are the subject of the License for a term extending through June 30, 2037, or, if later, the last to expire of the patents
which are the subject of the License. The patents relate to various powders, methodologies and equipment useful in the treatment
of wastewater. The License requires that we pay a royalty equal to 1% of our net revenues, as defined in the License, with a one-time
fee of $1million to be paid no later than December 31, 2021. Mao Xu, our Chairman of the Board and Chief Executive Officer, who
beneficially owns approximately 41.6% of our outstanding common stock owns a majority of the outstanding shares of Beijing QHY
Environment S&T Co. Ltd. (the “Beijing QHY”).
Although we entered into the License
Agreement and an Amendment to the License Agreement, certain key provisions which should have been set forth on schedules to the
License, including the specific products to be sold to us by QHY, the specifications for such products and trademarks to be developed
by QHY which we will be permitted to use, have not been agreed upon and included in the License, in part because QHY continues
to modify the products in response to the needs and requests of prospective customers. The parties will agree upon these provisions,
including the price to be charged for each product, at the time products are ordered by customers.
We
intend to recruit personnel in the United States to commence efforts to market solutions for the treatment of wastewater based
upon the intellectual property acquired pursuant to the Licensing Agreement. These solutions include stand-alone processing plants
designed to be transported, housed and maintained in standard shipping containers and mineral based powders used to treat the
subject wastewaters.
In
addition to licensing certain key technologies from Beijing QHY, we will likely purchase from Beijing QHY any equipment, supplies
and other consumables ordered by our clients. The prices at which such items are acquired by us will be determined by negotiation
between Beijing QHY and our directors.
The
systems to be provided by PBG are based upon advanced principles associated with flocculation, coagulation and separation. The
main ingredient, Yiyou ion separation purifier, is a natural mineral based powder that under the right conditions breaks the ionic
bonds in organic and inorganic matters in wastewater. The substances then re-bond with positive and negative ions in Yiyou, causing
the pollutants to cohere initially, into micro particles and, over a short time, into larger particles which fall to the bottom
of the processing container allowing the “clean” water to be siphoned off for further treatment depending upon the
desired quality of the end product. Because of the speed at which PBG’s systems can cleanse certain wastewater streams,
it may be particularly useful in a variety of situations where the goal is not to purify the water to the point where it can be
consumed by humans or animals but rather simply eliminate a sufficient quantity of the pollutants to allow the water to be recycled
into river or lake or be reused in an industrial process.
The PBG systems have been demonstrated
to be effective in the treatment of various streams of wastewater and, in PBG’s estimation, can economically be used to
treat wastewater in a variety of industries as well as polluted lakes and ponds. To date, in addition to laboratory studies, we
have conducted demonstrations in the field for potential customers. These have included the decentralized treatment of wastewater
for a local government in Bazhou, Hebei Province, China; the treatment of sewage drains along the Suzhou River in Shanghai, China;
the treatment of liquids pooled in a leachate refuse landfill in Henan Province, China; the treatment of industrial, shale wastewater,
in Colorado, where our system was tested against that developed by Armada Water Assets; the treatment of wastewater generated
by a mining operation in Kellogg, Idaho; and the treatment of the liquid discharge from a paper producing facility in Oklahoma.
In each of these cases, the PBG system was shown to be effective in reducing the amount of pollutants in the effluent treated
and PBG systems remain in operation in Shanghai and Hebei, China.
A principle advantage of the PBG system
is that the processing plant has been designed to be housed in a standard international shipping container, allowing for easy
transportation and installation. Once a container arrives at a designated site, there is little to do beyond hooking it up to
a power source and adding the necessary connecting pipes. Systems can be scaled to meet a customer’s needs simply by adding
more processing containers.
PBG
envisions that its systems can be used in a variety of industries, such as industrial wastewater treatment where the pollutant
is chemicals, heavy metals and mining runoff; sewage treatment and the purification of waste ponds typically found on industrial
sized poultry, pork and cattle farms; residential wastewater treatment where the pollutants vary and can be combined with industrial
wastes and rainwater runoff. Significantly, because of the portability and size of the basic processing plant, PBG’s systems
can easily be combined with other common methods of treating wastewaters to enhance their effectiveness and efficiency.
PBG
intends to offer customers their choice of whether to operate the systems on their own or to contract with PBG for a complete
outsourced service. In each case, PBG will participate in the design of the system and the customization of the materials and
dosing to be used to most economically treat the pollutants found in the customer’s wastewater. The patents and associated
products we licensed from Mr. Mao and Beijing QHY enable us to provide comprehensive wastewater treatment solutions by applying
an innovative wastewater treatment technology - Ion-Separation-Exchange Technology, to ensure that various wastewater reach the
disposal standard after treatment.
We believe, based on our own observations
and in part on a report issued by the China Society for Environmental Sciences in November 2015, that the technology underlying
the PBG System is advanced in the sense that:
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used on a standalone basis it effectively removes various water
contaminants to meet dischargeable standards, but it can also could be combined with other water treatment technics, such
as Biological Reduction, Reverse Osmosis, Permeable Reactive Barriers, etc., to meet more stringent requirements desired by
a customer;
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the PBG system is generally less expensive than treatment systems using traditional polymeric
flocculants - polyaluminum chloride (PAC) and polyacrylamide (PAM)- in that the capital investment required is less than that
of traditional systems, the utility (power) costs are less than that of traditional systems and the footprint of a PBG system,
a standardized shipping container if smaller than that associated with traditional systems;
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the PBG system requires less time to remove pollutants than that required by traditional
methods. This allows the PBG system to act as a nearly continuous flow system where the wastewater moves from one
chamber to another within the “shipping container” as the pollutants drop to the bottom leaving a clear liquid
at the top of the container to be siphoned off;
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the PBG system can be housed in a mobile shipping container
where multiple containers can be aggregated to form a larger unit. This allows for flexibility in design and reduced
space needs;
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The active ingredient in the PBG system is a naturally occurring non-toxic mineral based
powder that under the right conditions breaks the ionic bonds in organic and inorganic matters in wastewaters. The result
is that the system produces two outputs – water to the desired purity and a non-hazardous odorless sludge which can
easily be disposed. No secondary pollutant is created.
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The
Market
The
demand for clean pollutant free water continues to grow. As the supply of water is limited, the market for technologies designed
to recapture contaminated water so that it can be recycled for industrial uses or purified for use as drinking water continues
to expand. The processes employed to clean water range from simple gravity ponds to engineered chemical treatments. According
to Hexa Research, the global water and wastewater treatment market was approximately $478 billion in 2016 and is expected to grow
to nearly $675 billion by 2025. A report issued by Global Water Intelligence at the Suez 2017 Education Day stated that the global
market for industrial wastewater treatment was approximately $109 billion in 2016 and is expected to reach $132 billion by 2020.
Competition
The
market for wastewater and industrial wastewater treatment can be divided by industry, the processing method used to treat the
wastewater and whether the output is intended to be used for industrial purposes or human and animal consumption. Although there
are certain well-known technologies employed across a variety of industries, often a customer requires an engineered solution
unique to its needs and a number of technologies are combined to achieve the desired result. Consequently, the sales cycle is
often long and tedious requiring one on one meetings at which the provider convinces the prospective customer of the benefits
of its system. Given that adoption of a system often requires significant capital expenditures, customers are reluctant to switch
to new, unproven systems. As a result, PBG intends to market its systems to entities first seeking to treat their wastewaters
and in situations where it believes the portability and scalability of its processing system will prove advantageous.
There
are numerous large, highly sophisticated and well financed engineering firms and other entities engaged in the design of water
treatment facilities. Competitors range from those capable of designing, maintaining and operating large municipal water facilities,
those dealing with the disposal needs of laboratories, hospitals and other medical facilities and those engaged in recycling water
used on farms.
Regulation
Our
existing and planned water operations are subject to extensive federal, state and local laws and regulations, which govern the
protection of the environment, health and safety, water allocation rights, and the manner in which we collect, treat, discharge
and dispose of wastewater. Our planned operations in other countries will be also subject to regulatory standards and code enforcement,
which typically require that our solutions and products meet stringent performance criteria.
In
the United States, these requirements include the United States Clean Water Act of 1972, which we refer to as the “Clean
Water Act”. The Clean Water Act regulates discharges of wastewater treatment facilities into lakes, rivers, streams and
groundwater. In addition to requirements applicable to our wastewater collection systems, our operations require discharge permits
under the National Pollutant Discharge Elimination System (“NPDES”) permit program established under the Clean Water
Act, which must be renewed every five years. Pursuant to the NPDES permit program, the Environmental Protection Agency (“EPA”)
and implementing states set maximum discharge limits for wastewater effluents and overflows from wastewater collection systems.
Discharges that exceed the limits specified under NPDES permits can lead to the imposition of penalties, and persistent non-compliance
could lead to significant penalties and compliance costs. The Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 (“CERCLA”), authorizes the EPA, and comparable state laws authorize state environmental authorities, to
issue orders and bring enforcement actions to compel responsible parties to investigate and take remedial actions at any site
that is determined to present an actual or potential threat to human health or the environment because of an actual or threatened
release of one or more hazardous substances. If we enter into operations of utilities that provide water and wastewater services
to residential, commercial, industrial, and public, we will be subject to economic regulation by certain state utility commissions
or other entities engaged in utility regulation, collectively referred to as Public Utility Commissions (“PUCs”).
International
standards that will regulate our operation are established by such organizations as the International Code Council (ICC), the
International Association of Plumbing and Mechanical Officials (IAPMO), and the national regulatory standards that vary by country.
For example, major standards and guidelines in European countries include Kiwa NV (Netherlands), Association Française
de Normalisation (France), Swiss Gas and Water Industry Association (Switzerland), Water Regulations Advisory Scheme (UK), etc.
New Zealand, a country in which we are in process of establishing businesses, established National Policy Statement for Freshwater
Management (Freshwater NPS) in 2014 that provides direction on how local authorities should carry out their responsibilities under
the Resource Management Act 1991 for managing fresh water. New Zealand government amended Freshwater NPS in 2017 to a more stringent
level of standards for dischargeable wastewater.
We
may also be required to obtain various environmental permits from regulatory agencies for our operations. Certain of these permits
require substantial lead time to obtain and, once obtained, require that certain compliance tasks must be completed on a regular
basis in order to maintain such permits.
In
developing business opportunities, PBG has undertaken various trial wastewater treatment projects with potential customers, and
independent certified institutions were engaged to assess the output of each project. In each case, the results met the regulatory
standards the potential customer had targeted. The wastewater we ran trials on included the discharge from a lead-zinc mining
operation, an industrial sized cattle farm, a paper mill, a polluted urban river, industrial park sewages, and an oil and gas
field.
Employees
As
of September 1, 2018, the Company had one officer and no employees or financial obligations associated with previous employment
agreements. The Company has engaged a consultant to assist in the preparation of its financial reports. As of today, PBG’s
original shareholders continue to perform various services for us for no compensation.
In
developing our water solutions business, from time to time we have engaged various independent contractors who are not our employees.
Our
Principal Office
Our
principal office is located at Suite 1515, 1501 Broadway, New York, New York 10036. The office is provided to us by Rebus Capital
Group, an entity affiliated with Roy Teng, one of our directors, as part of a financial advisory agreement pursuant to which we
will pay Rebus $30,000 per quarter from June 2018. The agreement has a term of five years but is cancellable by either party on
sixty days’ notice. Our telephone number is (212) 324 1876.
ITEM
1A. RISK FACTORS.
An
investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors in addition
to other information in this prospectus before purchasing our common stock. The risks and uncertainties described below are those
that we currently deem to be material and that we believe are specific to our company, our industry and our stock. In addition
to these risks, our business may be subject to risks currently unknown to us. If any of these or other risks actually occurs,
our business may be adversely affected, the trading price of our common stock may decline and you may lose all or part of your
investment.
Risks
Related to Our Operations
We
have not generated any revenues and may not be able to continue to operate as a going concern.
We
have not generated any revenues and suffered net losses of $207,504 and $12,212 for the years ended December 31, 2017 and 2016,
respectively, and at December 31, 2017, we had an accumulated deficit of $219,716. The report of our independent registered public
accountants on our financial statements as of and for the year ended December 31, 2017 and 2016 states that these factors raise
uncertainty about our ability to continue as a going concern.
We
require significant funding to commence operations.
In
order to carry out our intended business plan, we will require significant funding to fund operating expenses prior to generating
significant revenues. There is no guarantee that we will be able to raise sufficient capital to implement our plan of operations.
The inability to obtain any such funding could materially affect our ability to implement our business plan.
We
are subject to significant operating risks.
Our
business is subject to numerous risks associated with a new, low-capitalized company engaged in our business sector. Such risks
include, but are not limited to, competition from well-established and well-capitalized companies, risks associated with pricing,
volumes and continued demand for wastewater treatment services, regulatory and environmental risks, as well as unanticipated difficulties
regarding the marketing and sale of our services. There can be no assurance that we will ever generate sufficient commercial sales
or achieve profitability. Should this be the case, our common stock could become worthless and investors in our common stock or
other securities could lose their entire investment.
Risks
Related to our Growth
We
depend on our management, without whose services our business operations could be adversely affected or cease.
At
this time, our management is wholly responsible for the development and execution of our business plan. If our management should
choose to leave us for any reason before we hire additional personnel, our operations could be adversely effected. Even if we
are able to find additional personnel, it is uncertain whether we could find qualified management who could develop our business
along the lines described herein or would be willing to work for compensation that we could afford.
We
will need to increase the size of our organization, and may experience difficulties in managing growth.
We
are a small company with a limited management team, and limited corporate infrastructure. We expect to continue to experience
a period of significant expansion in headcount, facilities, infrastructure and overhead to address potential growth and market
opportunities and to meet our reporting requirements under the Exchange Act. Future growth will impose significant added capital
requirements, as well as added responsibilities on members of management, including the need to identify, recruit, maintain and
integrate new personnel. Our future financial performance and our ability to compete effectively will depend, in part, on our
ability to manage any future growth effectively.
We
expect our operating expenses to increase substantially in the future as we attempt to grow our business, and we may need to raise
additional funds to meet the demands of growth initiatives.
We
expect that our operating expenses will increase substantially over the next 12 months as we endeavor to implement growth initiatives,
both organically and through acquisitions. As a result, we may need to raise additional funds in the future, and such funds may
not be available on commercially reasonable terms, if at all. If we cannot raise funds on acceptable terms, we may not be able
to implement our business plan, take advantage of future opportunities, or respond to competitive pressures or unanticipated requirements.
This could seriously harm our business, financial condition and results of operations.
In
order to meet our capital needs, we may be required to make additional borrowings or be required to issue new debt securities
in the capital markets. We can provide no assurances that we will be able to access the debt capital markets or do so on favorable
terms. If new debt is added to our current debt levels, the related risks we now face could intensify, limiting our ability to
refinance existing debt on favorable terms. We will depend primarily on operations to fund our expenses and to pay the principal
and interest on our outstanding debt. Our ability to meet our expenses thus depends on our future performance, which will be affected
by financial, business, economic, competitive, legislative, regulatory and other factors beyond our control. If we do not have
enough money to pay the principal and interest on our outstanding debt, we may be required to refinance all or part of our existing
debt, sell assets, borrow additional funds or sell additional equity. If our business does not generate sufficient cash flow from
operations or if we are unable to incur indebtedness sufficient to enable us to fund our liquidity needs, we may be unable to
plan for or respond to changes in our business that would prevent us from maintaining or increasing our business and cause our
operating results and prospects to be affected adversely.
We
may not be able to fully develop the water treatment solutions we are presently targeting.
We
believe that one of our competitive advantages will be our ability to develop all-inclusive services that offer proprietary and
innovative water treatment systems and solutions. The technologies we have licensed and on which we depend have only recently
been developed. We have not engaged independent engineers or our own personnel to conduct testing to determine long-term effectiveness
of such systems, nor have we deployed these solutions with any customers to determine commercial acceptance. Accordingly, we can
offer no assurances as to the effectiveness or commercial viability of our treatment systems.
Our
proposed water treatment solutions are unproven and may not achieve widespread market acceptance among our prospective customers.
If we are unable to sell our water treatment systems, our business will suffer.
Our
solutions and processes for water treatment will compete with other forms of water treatment technologies that currently are in
operation throughout the world. Our water treatment solutions and the systems on which they are based may not achieve widespread
market acceptance. Our success with our water treatment solutions will depend on our ability to market our system and services
to businesses on terms and conditions acceptable to us and to establish and maintain successful relationships with various water
providers and state regulatory agencies.
We
believe that market acceptance of our system will depend on many factors including:
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our
current and future relationships with market participants;
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the
perceived advantages of our system over competing water treatment solutions;
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the
safety and efficacy of our system;
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the
availability of alternative water treatment solutions;
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the
pricing and cost effectiveness of our system;
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our
ability to access businesses and water providers that may use our system;
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the
effectiveness of our sales and marketing efforts;
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publicity
concerning our system and technology or competitive solutions;
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timeliness
in assembling and installing our system on or near customer sites;
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our
ability to respond to changes in regulations; and
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our
ability to provide effective service and maintenance of our systems to our customers’ satisfaction.
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If
our system fails to achieve or maintain market acceptance or if new technologies are introduced by others that are more favorably
received than our systems, are more cost effective, or otherwise render our systems obsolete, we may not be able to sell our systems.
If we are unable to sell our systems, our business and prospects would suffer.
Our
operations are subject to extensive environmental laws and regulations. Our operating costs may increase as a result of complying
with environmental laws and regulations. We also could incur substantial costs as a result of violations of or liabilities under
such laws and regulations.
Our
existing and planned water operations are subject to extensive federal, state and local laws and regulations, which govern the
protection of the environment, health and safety, water allocation rights, and the manner in which we collect, treat, discharge
and dispose of wastewater. These requirements include the United States Clean Water Act of 1972, which we refer to as the “Clean
Water Act”. We may also be required to obtain various environmental permits from regulatory agencies for our operations.
Certain of these permits require substantial lead time to obtain and, once obtained, require that certain compliance tasks must
be completed on a regular basis in order to maintain such permits. State regulatory agencies also set conditions and standards
for the water and wastewater services we deliver. If we deliver water or wastewater services to our customers that do not comply
with regulatory standards, or otherwise violate environmental laws, regulations or permits, or other health and safety and water
quality regulations, we could incur substantial fines, penalties or other sanctions or costs or damage to our reputation. In the
most serious cases, regulators could force us to discontinue operations. We will incur substantial operating and capital costs
on an ongoing basis to comply with environmental laws and regulations and other health and safety and water quality regulations.
These laws and regulations, and their enforcement, have tended to become more stringent over time, and new or stricter requirements
could increase our costs.
Although
we may seek to recover ongoing compliance costs in our pricing, there can be no guarantee that such pricing may be sustained in
the marketplace. We may also incur liabilities under environmental laws and regulations requiring us to investigate and clean
up environmental contamination at our properties or at off-site locations where we have disposed of waste or caused adverse environmental
impacts. We may also be subject to liability if we improperly handle, transport, process or dispose of contaminated water. The
discovery of previously unknown conditions, the improper handling by us of contaminated water or other materials, or the imposition
of cleanup obligations in the future, could result in significant costs, and could adversely affect our financial condition, results
of operations, cash flow and liquidity. Such remediation losses may not be covered by our insurance policies and may make it difficult
for us to secure insurance in the future at acceptable rates. If any remediation losses that are not covered by insurance are
excessive, we may be required to significantly curtail our operations.
Our
business depends on spending for the treatment of wastewater, and this spending may be adversely affected by industry and financial
market conditions that are beyond our control.
We
will depend on our customers’ willingness to make operating and capital expenditures to treat their wastewaters. A belief
on the part of our potential customers that their businesses may decline may cause our customers to curtail spending, thereby
reducing demand for our services. Industry conditions are influenced by numerous factors over which we have no control.
Geopolitical
conditions and global economic factors may adversely affect us.
Uncertain
geopolitical conditions and global economic factors may adversely affect our business. Adverse factors affecting economic conditions
worldwide have contributed to a general inconsistency in the world’s economies and may adversely impact our business, resulting
in reduced demand for water remediation and supply. The current and ongoing uncertainty of the international economic situation,
civil unrest, terrorist activity and military actions may continue to adversely affect global economic conditions. Economic and
market conditions could deteriorate as a result of any of the foregoing reasons. We may experience material adverse effects on
our business, financial condition, results of operations and cash flows as a consequence of the foregoing factors.
Changes
in laws and regulations over which we have no control can significantly affect our business and results of operations.
Any
governmental entity that regulates our operations may enact new legislation or adopt new regulations or policies at any time,
and new judicial decisions may change the interpretation of existing legislation or regulations at any time. The individuals who
serve as regulators are elected or are political appointees. Therefore, elections which result in a change of political administration
or new appointments may also result in changes in the individuals who serve as regulators and the policies of the regulatory agencies
that they serve. New laws or regulations, new interpretations of existing laws or regulations, or changes in agency policy, including
as a response to shifts in public opinion, or conditions imposed during the regulatory hearing process may affect our business
in a number of ways.
If
we do not compete successfully against existing and new competitors, we may lose market share and suffer losses.
There
are numerous large, highly sophisticated and well financed engineering firms and other entities engaged in the design of water
treatment facilities. Competitors range from those capable of designing, maintaining and operating large municipal water facilities,
those dealing with the disposal needs of laboratories, hospitals and other medical facilities and those engaged in recycling water
used on farms.
We
believe that our ability to compete depends upon many factors both within and beyond our control. Some of our current and potential
competitors may have greater financial, engineering, marketing, and other resources than we have. Certain of our competitors may
be able to devote greater resources to marketing and promotional campaigns and devote substantially more resources to system development
than us. Increased competition may reduce our market share and require us to increase our marketing and promotional efforts, which
could negatively affect our operating margins or force us to incur losses. There can be no assurance that we will be able to compete
successfully against current and future competitors, and competitive pressures may have a material adverse effect on our business,
prospects, financial condition and results of operations.
Risks
Related to Ownership of Common Stock and Operation as a Public Company.
There
is no current trading market for our common stock, and there is no assurance of an established public trading market, which would
adversely affect the ability of our investors to sell their shares in the public market.
Our
common stock is quoted on OTC Pink under the symbol “YIHG”; however; an active trading market for our shares does not
exist. We cannot assure you that a regular trading market for our shares of common stock will develop, or that if one develops,
that it will be sustained.
The
market price and trading volume of shares of our common stock may be volatile.
If
a market develops for our securities, the market price of our common stock could fluctuate significantly for many reasons, including
reasons unrelated to our specific performance, such as reports by industry analysts, investor perceptions, or announcements by
our competitors regarding their own performance, as well as general economic and industry conditions. For example, to the extent
that other large companies within our industry experience declines in their share price, our share price may decline as well.
Fluctuations in operating results or the failure of operating results to meet the expectations of public market analysts and investors
may negatively impact the price of our securities.
Quarterly
operating results may fluctuate in the future due to a variety of factors that could negatively affect revenues or expenses in
any particular quarter, including vulnerability of our business to a general economic downturn; changes in the laws that affect
our products or operations; competition; compensation related expenses; application of accounting standards; and our ability to
comply with all necessary regulatory permits and/or licenses to conduct our business. In addition, if the market price of our
shares should ever drop significantly, stockholders could institute securities class action lawsuits against us, even though there
may be no legal basis for any such lawsuit. A lawsuit against us could cause us to incur substantial costs and could divert the
time and attention of our management and other resources.
Our Chairman of the Board and
Chief Executive Officer owns the Licensor and therefore actions taken on behalf the Licensor may not be in the best interests of
our stockholders.
Mr. Mao Xu, our Chairman of the Board
and Chief Executive Officer, who beneficially owns approximately 41.6% of our outstanding shares of common stock, owns the patents
we licensed and holds a majority of the outstanding shares of the Beijing QHY, and therefore has a conflict of interest in matters
affecting the License Agreement, and actions taken on behalf of the Licensor may not be in the best interests of our stockholders.
Key Provisions of the License
Agreement Have not been Finalized.
Although the parties have entered into
a License Agreement and an Amendment to the License Agreement with respect to the patents and technologies to be licensed by us
from Beijing QHY, certain key provisions which are to be set forth on schedules to the License, including the products to be sold
to us by QHY, the specifications for such products and trademarks to be developed by QHY which we will be permitted to use, have
not been agreed upon and included in the License. The parties will agree upon these provisions at the time products are ordered
by customers. As changes are made to the products, there will be a need to agree upon new prices. The prices agreed upon by us
and Beijing QHY will impact our ability to generate positive cash flow and achieve profitability.
We
may suffer a change in control and our business could be significantly harmed if an owner of a significant number of our shares,
including our Chairman of the Board and Chief Executive Officer or other directors pledge their shares to secure loans and default
in the payment of those loans.
If
Mao Xu, our Chairman of the Board and Chief Executive Officer, who owns approximately 41.6% of our outstanding shares, or Yu Tao
or Roy Teng, our other directors, each of whom owns approximately 20.8% of our outstanding shares, was to pledge his shares to
secure the payment of a loan, and then default in the payment of that loan, the default could result in a sale of a substantial
number of our common shares resulting in a decrease in the price of our shares and a change in control of our company.
Currently, nearly all
of our operations and management are located outside of the United States. U.S. investors may experience difficulties in attempting
to effect service of process and to enforce judgments based upon U.S. federal securities laws against the company and its non
U.S. resident officers and directors.
While we are organized under
the laws of State of Nevada, our management, our officers and directors are non-U.S. residents, and are located outside of the
United States. Consequently, it may be difficult for investors to effect service of process on such officers and directors in
the United States and to enforce in the United States judgments obtained in United States courts against such persons based on
the civil liability provisions of the United States securities laws. Since nearly all of our assets are located outside of the
U.S. it may be difficult or impossible for U.S. investors to collect a judgment against us. As well, any judgment obtained in
the United States against us may not be enforceable.
If
we fail to develop and maintain an effective system of internal controls, we may not be able to accurately report our financial
results or prevent fraud, as a result, current and potential stockholders could lose confidence in our financial reports, which
could harm our business and the trading price of our common stock.
Effective
internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. Section 404 of the
Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal controls over financial reporting. Compliance with
Section 404 requires that we strengthen, assess and test our system of internal controls to provide the basis for our report.
The process of strengthening our internal controls and complying with Section 404 is expensive and time consuming, and requires
significant management attention. We cannot be certain that the measures we undertake will ensure that we will maintain adequate
controls over our financial processes and reporting in the future. Furthermore, if we are able to rapidly grow our business, the
internal controls that we will need will become more complex, and significantly more resources will be required to ensure our
internal controls remain effective. Failure to implement required controls, or difficulties encountered in their implementation,
could harm our operating results or cause us to fail to meet our reporting obligations. If we discover a material weakness in
our internal controls, the disclosure of that fact, even if the weakness is quickly remedied, could diminish investors’ confidence
in our financial statements and harm our stock price. In addition, non-compliance with Section 404 could subject us to a variety
of administrative sanctions, including the suspension of trading, ineligibility for listing on the OTC Markets, and the inability
of registered broker-dealers to make a market in our common stock, which would further reduce our stock price.
We
will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial
time to compliance efforts.
As
a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The
Sarbanes-Oxley Act and related SEC regulations, have created uncertainty for public companies and significantly increased the
costs and risks associated with accessing the public markets and public reporting. For example, on January 30, 2009, the SEC adopted
rules requiring companies to provide their financial statements in interactive data format using the extensible Business Reporting
Language, or XBRL. We are required to comply with these rules. Our management and other personnel will need to devote a substantial
amount of time and financial resources to comply with these requirements, as well any new requirements implemented by the SEC.
Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more
time-consuming and costly and could lead to a diversion of management time and attention from revenue generating activities to
compliance activities. We are currently unable to estimate these costs with any degree of certainty. These rules and regulations
could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors and board
committees or as executive officers and more expensive for us to obtain director and officer liability insurance.
Our
common stock is subject to the “Penny Stock” Rules of the SEC and the trading market in our securities is limited,
which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.
The
SEC has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as
any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker
or dealer approve a person’s account for transactions in penny stocks; and (b) the broker or dealer receive from the investor
a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In
order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information
and investment experience and objectives of the person; and (b) make a reasonable determination that the transactions in penny
stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable
of evaluating the risks of transactions in penny stocks.
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission
relating to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the
suitability determination; and (b) that the broker or dealer received a signed, written agreement from the investor prior to the
transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock”
rules. This may make it more difficult for investors to dispose of our common shares and cause a decline in the market value of
our stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to
be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny
stocks.
The
Financial Industry Regulatory Authority (“FINRA”) sales practice requirements may also limit your ability to buy and
sell our common stock, which could depress the price of our shares.
FINRA
has adopted rules that require broker-dealers to have reasonable grounds for believing that an investment is suitable for a customer
before recommending that investment to the customer. Prior to recommending speculative low-priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax
status and investment objectives, among other things. Under interpretations of these rules, FINRA believes that there is a high
probability such speculative low-priced securities will not be suitable for at least some customers. Thus, FINRA requirements
make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability
to buy and sell our shares, have an adverse effect on the market for our shares, and thereby depress our share price.
Since
our principal stockholders beneficially own in excess of 83% of our outstanding of common stock, you will not have the ability
to determine the outcome of matters requiring stockholder approval, including the acquisition of a target business.
Our
principal stockholders own in excess of 83% of our outstanding shares of our common stock. As a result, you will not have the
ability to determine the outcome of matters requiring the approval of stockholders, including: (a) election of our board of directors;
(b) removal of any of our directors; (c) amendments to our Articles of Incorporation or bylaws; (d) adoption of measures that
could delay or prevent a change in control or impede a merger, takeover or other business combination involving us, or (e) other
significant corporate transactions, including the acquisition of a target business.
Under
our Articles of Incorporation, our Board of Directors has the authority, without stockholder approval, to issue preferred stock
with terms that may not be beneficial to common stock holders and with the ability to adversely affect stockholder voting power
and perpetuate the board’s control over our company.
Our
Board of Directors by resolution may authorize the issuance of up to 5,000,000 shares of preferred stock in one or more series
with such limitations and restrictions as it may determine, in its sole discretion, with no further authorization by security
holders required for the issuance of such shares. The Board may determine the specific terms of the preferred stock, including:
designations; preferences; conversions rights; cumulative, relative; participating; and optional or other rights, including: voting
rights; qualifications; limitations; or restrictions of the preferred stock.
The
issuance of preferred stock may adversely affect the voting power and other rights of the holders of common stock. Preferred stock
may be issued quickly with terms calculated to discourage, make more difficult, delay or prevent a change in control of our company
or make removal of management more difficult. As a result, the Board of Directors’ ability to issue preferred stock may
discourage the potential hostile acquirer, possibly resulting in beneficial negotiations. Negotiating with an unfriendly acquirer
may result in terms more favorable to us and our stockholders. Conversely, the issuance of preferred stock may adversely affect
the market price of, and the voting and other rights of the holders of the common stock. We presently have no plans to issue any
preferred stock.
We
may, in the future, issue additional shares of common stock, which would reduce investors’ percent of ownership and may
dilute our share value.
Our
Articles of Incorporation, as amended, authorize the issuance of 1,000,000,000 shares of common stock. As of September 10,
2018, we had 79,099,039 shares of common stock outstanding. The future issuance of common stock may result in substantial
dilution in the percentage of our common stock held by our then existing stockholders. We may value any common stock issued
in the future on an arbitrary basis. The issuance of common stock for future services or acquisitions or other corporate
actions may have the effect of diluting the value of the shares held by our investors, and might have an adverse effect on
any trading market for our common stock.
We
do not foresee paying cash dividends on our common stock in the foreseeable future and, as a result, our investors’ sole
source of gain, if any, will depend on capital appreciation, if any.
We
do not plan to declare or pay any cash dividends on our shares of common stock in the foreseeable future. As a result, investors
should not rely on an investment in our securities if they require the investment to produce dividend income. Capital appreciation,
if any, of our shares may be investors’ sole source of gain for the foreseeable future. Moreover, investors may not be able
to resell their shares of our common stock at or above the price they paid for them.
ITEM
2. FINANCIAL INFORMATION.
The
following discussion should be read in conjunction with the financial statements and related notes that appear elsewhere in this
prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could
differ materially from those anticipated in these forward-looking statements. All forward-looking statements speak only as of
the date on which they are made. We undertake no obligation to update such statements to reflect events that occur or circumstances
that exist after the date on which they are made.
Management’s
Discussion and Analysis or Plan of Operations
PBG
was organized in August 2016 to explore the market in the United States for wastewater treatment solutions and subsequently expanded
its focus to markets outside the United States. On April 3, 2017, PBG entered into the License Agreement with Beijing QHY Environment
S&T Co. Ltd., a corporation organized under the laws of the People’s Republic of China, pursuant to which PBG was granted
the exclusive right to 21 patents and related technologies related to wastewater treatment solutions. The License was amended
in June 2017.
To
date, PBG has not been adequately capitalized and has relied upon loans from its principal shareholder to pay its expenses. The
ability of the Company to continue as a going concern is dependent on the Company’s obtaining adequate capital to fund operating
losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
PBG
intends to seek to raise the necessary capital to recruit the personnel necessary to commence operations in the United States
and internationally and to begin performing under such contracts as it may be granted. Its revenues will be determined by the
prices negotiated with those parties that choose to employ its water treatment facilities and further, will be determined by the
scope of the products and services agreed to be provided. The Company’s expenses will be determined principally by the costs
incurred in performing under any contract, the amount devoted to expenses related to being a public company, such as accounting
and legal expenses.
There
can be no assurance that the Company will be able to enter into contracts for the use of its systems or that it will be able to
perform its obligations under such contracts on a profitable basis.
In an effort to demonstrate the effectiveness
of our systems, our subsidiary, QHY Environmental Science & Technologies Oceania Limited (“QHY Oceania”), entered
into a Memorandum of Understanding on Wastewater Treatment Cooperation (the “MOU”) on July 10, 2018 with Open Country
Dairy Limited, a representative company of the New Zealand Dairy industry and the second largest global exporter of premium Whole
Milk Powders. Pursuant to the MOU, QHY Oceania will install and run a pilot wastewater treatment plant with capacity to treat
500 m
3
per day of wastewater in one of Open Country’s locations. The equipment is in the finishing stages
in China and shortly will be shipped to New Zealand and is expected to be operational in early October. The results of the test
will be the basis for QHY Oceania and Open Country to enter into a purchase agreement for a larger capacity processing plant.
During the next 12 months, we anticipate
that we will incur a minimum of approximately $400,000 in expenses, inclusive of professional fees, employee compensation and
sales and marketing efforts. If our marketing efforts prove successful, we will incur additional costs as we ramp up to perform
under any contracts we enter. We believe we will be able to meet these costs through amounts, as necessary, to be loaned by or
invested in us by our principal stockholders or other investors. If we were to be successful in our efforts to raise capital,
it is to be expected that our costs would increase as we would hire additional personnel and increase our marketing efforts. We
have no specific plans, understandings or agreements with respect to the raising of such funds, and we may seek to raise the required
capital by the issuance of equity or debt securities or by other means. Since we have no such arrangements or plans currently
in effect, our inability to raise funds for the consummation of an acquisition may have a severe negative impact on our ability
to become a viable company.
Results
of Operations
Three and
Six Months ended June 30, 2018 and 2017
In the first quarter of 2018 PBG effected the reverse acquisition of Yakun International
Investment and Holding Group, and otherwise continued its efforts begun in 2017 to land an initial anchor customer outside of
China. As no products were sold, the Company generated no revenues during the first half of 2018 and 2017. The expenses incurred
during the six months ended June 30, 2018 and 2017 were principally professional fees and general and administrative expenses
related to the exploration of the market for our system.
Total operating expenses were $108,793
and $33,502 for the three months ended June 30, 2018 and 2017, respectively. Total operating expenses were $137,556 and $48,999
for the six months ended June 30, 2018 and 2017, respectively. The increase in operating expenses for the three and six months
ended June 30, 2018 reflects a substantial increase in the level of the Company’s market exploratory activities in 2018
period as compared to the comparable three and six month periods in 2017.
During the three and six months ended June 30, 2018, we incurred $3,324 interest
expense and $4,540,000 for issuing warrant to a 20.8% shareholder for a 2-year $500,000 credit loan. This shareholder provided
loans without any interest since the inception of PBG for its operations and to Yakun International since the PBG Share Exchange.
Years
ended December 31, 2017 and 2016
PBG
was organized in August 2016. During the remainder of 2016 and all of 2017 its activities were limited to the exploration of the
markets for wastewater treatment within and outside the United States. The Company sold no products and performed no services
during such period and consequently, generated no revenues. The expenses incurred primarily related to those costs and expenses
incurred by its representatives in exploring the market, and meeting with prospective customers and employees to determine their
interest in using the products available pursuant to the License Agreement or working for the Company, and professional fees incurred
in connection with the Company’s organization and initial activities.
Total
operating expenses were $207,504 and $12,212 for the years ended December 31, 2017, and 2016, respectively. The increase in operating
expenses for the year ended December 31, 2017 reflects a substantial increase in the level of the Company’s exploratory
activities in 2017 as compared to 2016.
Liquidity
and Capital Resources
Liquidity
is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise
operate on an ongoing basis. As of June 30, 2018 and December 31, 2017, we had $0 in cash. We have not generated revenues to fund
our operating expenses since formation and have had to rely upon contributions from our stockholders. We need to obtain financing
to commence operations and satisfy our cash needs for the next 12 months. In all likelihood, for the foreseeable future, we will
remain dependent upon our management and stockholders to fund our cash needs.
As described
above, we anticipate incurring a minimum of $400,000 in expenses over the next twelve months. Further, should our marketing efforts
prove successful we will require additional working capital to perform any contracts we are awarded. The absence of capital will
likely be a limiting factor on our ability to grow until such time as we raise a significant amount of equity or long-term debt.
Even after we raise capital, our ability to grow may still be impeded by a lack of adequate working capital to simultaneously
perform under multiple contracts.
We
have entered into a Credit Loan Agreement with Dragon & Tiger Holding Limited (“D&T”), one of our shareholders.
Pursuant to the agreement, D&T has agreed to lend us up to $500,000. This amount should satisfy our capital needs for the
next twelve months but is not sufficient to satisfy our long term capital needs. All amounts borrowed are to bear interest at
the rate of 10% per annum. Accrued interest through the end of 2018 and 2019 and is to be paid no later than 90 days after the
end of each year. All amounts borrowed are to be repaid in full on or before May 1, 2020. In addition to interest, D&T was
issued three-year warrants to purchase 50,000,000 shares of the registrant’s common stock at a price of $0.01 per share.
The warrants cannot be exercised before April 1, 2019, and shall be void and non-exercisable if the Company (i) raises more than
$20 million in equity or (ii) has revenue in excess of $100 million in any fiscal year. To date, D&T has advanced an aggregate
of $210,951.
The
following table summarizes the Company’s cash flows for the six months ended June 30, 2018 and 2017:
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Net cash used in operating activities
|
|
$
|
(192,416
|
)
|
|
$
|
(48,999
|
)
|
|
Net cash provided by investing activities
|
|
|
-
|
|
|
|
-
|
|
|
Net cash provided by financing activities
|
|
|
192,416
|
|
|
|
48,999
|
|
|
Net increase in cash and cash equivalents
|
|
$
|
-
|
|
|
$
|
-
|
|
The
following table summarizes the Company’s cash flows for the years ended December 31, 2017 and 2016:
|
|
|
Year ended December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Net cash used in operating activities
|
|
$
|
(163,504
|
)
|
|
$
|
(7,212
|
)
|
|
Net cash provided by investing activities
|
|
|
-
|
|
|
|
-
|
|
|
Net cash provided by financing activities
|
|
|
163,504
|
|
|
|
7,212
|
|
|
Net increase in cash and cash equivalents
|
|
$
|
-
|
|
|
$
|
-
|
|
Going
Concern Consideration
The
Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable
to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business.
The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue
as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s obtaining adequate
capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be
forced to cease operations.
In
order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plans
to obtain such resources for the Company include (1) obtaining capital from management and significant stockholders sufficient
to meet its minimal operating expenses, and (2) seeking out and completing a merger with an existing operating company. However,
management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The
ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described
in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Critical
Accounting Policies
The
discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have
been prepared in accordance with U.S. generally accepted accounting principles. The preparation of our financial statements requires
us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience
and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or conditions.
Management
believes the following critical accounting policies affect the significant judgments and estimates used in the preparation of
the financial statements.
Use
of estimates
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Management
makes these estimates using the best information available at the time the estimates are made; however, actual results could differ
from those estimates.
Income
Taxes
Current
income taxes are provided for in accordance with the laws of the relevant taxing authorities. As part of the process of preparing
financial statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates.
The Company accounts for income taxes using the assets and liability method. Under this method, deferred income taxes are recognized
for tax consequences in future years of differences between the tax bases of assets and liabilities and their reported amounts
in the financial statements at each year-end. Deferred tax assets and liabilities are measured using enacted tax rates applicable
for the differences that are expected to affect taxable income.
The
Company adopts a more likely than not threshold and a two-step approach for the tax position measurement and financial statement
recognition. Under the two-step approach, the first step is to evaluate the tax position for recognition by determining if the
weight of available evidence indicates that it is more likely than not that the position will be sustained, including resolution
of related appeals or litigation process, if any. The second step is to measure the tax benefit as the largest amount that is
more than 50% likely of being realized upon settlement. As of December 31, 2017 and 2016, the Company did not have any uncertain
tax positions.
Functional
currency and foreign currency translation and transactions
The
Company’s functional and reporting currency is the U.S. dollar (“US$”). Transactions denominated in currencies
other than the functional currency are translated into prevailing functional currency at the exchange rates prevailing at the
late date of the months the transactions occurred. The Company had no monetary assets and liabilities denominated in foreign currencies
at the balance sheet dates.
Related
parties
Parties
are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant
influence over the other party in making financial and operating decisions. Parties are also considered to be related if they
are subject to common control or significant influence, such as a family member or relative, stockholder, or a related corporation.
Off-Balance
Sheet Arrangements
The
Company has no off-balance sheet arrangements.
ITEM
3. PROPERTIES.
The
Company currently maintains a corporate office at Suite 1515, 1501 Broadway, New York, NY, 10036. The office is provided to us
by Rebus Capital Group, an entity affiliated with Roy Teng, as part of a financial advisory agreement pursuant to which we pay
Rebus $30,000 per quarter. The agreement has a term of five years but is cancellable by either party on sixty days’ notice.
Our telephone number is (212) 324 1876.
ITEM
4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The
following table sets forth, as of September 10, 2018, the number of shares of our common stock beneficially owned by (i) each
person or entity known to us to be the beneficial owner of more than 5% of the outstanding common stock; (ii) each of our directors
and officers, and (iii) all of our officers and directors as a group. Information relating to beneficial ownership of common stock
by our principal stockholders and management is based upon information furnished by each person using beneficial ownership concepts
under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be a beneficial owner of a
security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or
investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial
owner of any security of which that person has a right to acquire beneficial ownership within 60 days.
Under
the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities,
and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial
interest. Each beneficial owner’s percentage ownership is determined by assuming that options or warrants that are held by such
person (but not those held by any other person) and which are exercisable within 60 days from the date of this report have been
exercised. Except as noted below, each person has sole voting and investment power.
As
of September 10, 2018, we had outstanding 79,099,039 shares of common stock. We do not have any outstanding options, or other
securities exercisable for or convertible into shares of our common stock.
|
Name of Stockholder
|
|
Amount and Nature of Beneficial Ownership
|
|
|
Percent of Class
|
|
|
Our Directors and Executive Officers:
|
|
|
|
|
|
|
|
Mao Xu
|
|
|
32,919,719
|
|
|
|
41.62
|
%
|
|
Yu Tao
|
|
|
16,459,860
|
|
|
|
20.81
|
%
|
|
Dragon & Tiger Holding Limited (1)
|
|
|
16,459,860
|
|
|
|
20.81
|
%
|
|
Jin Siming
|
|
|
-
|
|
|
|
-
|
|
|
All Directors and Executive Officers as a group
|
|
|
65,839,439
|
|
|
|
83.24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Other Owners of More than 5% of Common Stock:
|
|
|
|
|
|
|
|
|
|
Song Yakun
|
|
|
9,100,000
|
|
|
|
11.50
|
%
|
|
|
(1)
|
Dragon & Tiger Holding Limited is owned by Roy Teng, one
of our directors.
|
ITEM
5. DIRECTORS AND EXECUTIVE OFFICERS.
The
table below sets forth the name and age of each executive officer and director of the Company and the date such executive officer
or director was elected to his current position with the Company. There is no family relationship between the executive officers.
|
Name
|
|
Age
|
|
|
Positions
|
|
Mao Xu
|
|
|
53
|
|
|
Chairman of the Board and Chief Executive Officer
|
|
Roy Teng
|
|
|
39
|
|
|
Director
|
|
Yu Tao
|
|
|
52
|
|
|
Director
|
|
Jin Siming
|
|
|
29
|
|
|
Secretary
|
Mao
Xu
Mr.
Mao Xu has served as our Chief Executive Officer and Chairman of the Board since March 29, 2018. Mr. Mao has over 25 years’
experience managing and operating companies of various sizes in stages of development, including a number of companies he founded.
Mr. Mao served as General Manager of Beijing Shuanglong Aviation Service Company from 1993 to 2002, and chairman of Beijing Tianxing
Futures Brokerage Company Limited from 1997 to 2008. Since 2000 Mr. Mao has served as chairman of Citron Holdings Limited. In
2001, Mr. Mao became chairman of Orient Xiehe Medical Bio-technology Company Limited, a position which he continues to hold. Mr.
Mao has been involved in chemical and molecular products research and operations since 2001, and has been focused on wastewater
treatment research, application and project management for 5 years. Mr. Mao received an associate degree on law from China University
of Political Science and Law.
Roy
Teng
Mr.
Roy Teng has been a Director of our company since March 29, 2018. Mr. Teng is responsible for advising on and supervising the
implementation of strategic investment planning of our Group. Mr. Teng has over ten years of experience in the field of finance.
From August 2004 to December 2006, Mr. Teng worked as vice president of corporate development for China Digital Communication
Group, a manufacturer of battery shells and related technology for use in electronic products, primarily mobile phones. From December
2006 to October 2008, Mr. Teng served as managing director at China Finance Inc. From October 2008 to June 2014, Mr. Teng served
as president of the China region and managing director of investment banking of Brean Capital, LLC, a boutique investment bank.
Mr. Teng has been the legal representative of Leshan Ruijin Investment Management Company Limited since August 2011 and the general
manager since June 2014. Mr. Teng obtained his bachelor’s degree of science in management and his master’s degree
of science in international business from Arizona State University and California International University in May 2002 and June
2004, respectively. Mr. Teng also received a Post Baccalaureate Certificate in Accountancy from Arizona State University West
in May 2003 and a Master of Business Administration from Peking University in July 2015.
Yu
Tao
Mr.
Yu Tao has been a Director of our company since March 29, 2018. Mr. Yu has over 18-years’ experience in managing and operating
companies in various industries in China, a number of which he formed. Since 2001 Mr. Yu has served as chairman of Beijing Huarong
Hengtai Trade Company Limited. Beginning in 2003, Mr. Yu began to serve as chairman of Beijing Wantong World Real Estate Company
Limited, a real estate acquisition and development company. Since 2014, Mr. Yu has served as chairman of Beijing Wanrong Century
Properties Company Limited. Mr. Yu received a bachelor degree in Chinese Literature from Shanxi University in year 1989.
Jin
Siming
Mr.
Jin Siming served as our President, Chief Executive Officer and Secretary from July 2014 to March 2018, and continues to serve
as our Secretary. Mr. Jin is experienced in corporate finance and the general affairs of public companies. Since 2013 Mr. Jin
has served as a manager of Leshan Ruijin Investment Management Company Limited. Mr. Jin received a bachelor degree in International
Economics and Trade from Xiamen University in 2012.
Board
Composition
Our
bylaws provide that the Board of Directors shall consist of one or more members. Each director of the Company serves for a term
of one year or until his successor is elected at the Company’s annual stockholders’ meeting and is qualified, subject
to removal by our stockholders. Each officer serves at the pleasure of the Board of Directors, for a term of one year and until
his successor is elected at the annual meeting of the Board of Directors.
Significant
Employees
Other
than the above-named officers and directors, we have no full-time employees whose services are materially significant to our business
and operations.
Family
Relationships
There
are no familial relationships among any of our officers or directors. None of our directors or officers is a director in any other
reporting companies except disclosed. The Company is not aware of any proceedings to which any of the Company‚ officers
or directors, or any associate of any such officer or director, is a party adverse to the Company or any of the Company‚
subsidiaries or has a material interest adverse to it or any of its subsidiaries.
Involvement
in Legal Proceedings
None.
ITEM
6. EXECUTIVE COMPENSATION.
The
following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to our chief
executive officer for services rendered in all capacities for the periods set forth below. No executive officer of our company
received any compensation for services rendered during the fiscal year ended December 31, 2017.
Summary
Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
Deferred
|
|
|
|
|
|
|
|
|
Name and
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
Incentive
Plan
|
|
Compensation
|
|
|
All Other
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
Bonus
|
|
Awards
|
|
Awards
|
|
Compensation
|
|
Earnings
|
|
|
Compensation
|
|
|
Total
|
|
|
Position
|
|
Year
|
|
Salary
|
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jin Siming
|
|
2017
|
|
None
|
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
|
None
|
|
|
None
|
|
|
President,
CEO, Secretary
|
|
2016
|
|
None
|
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
|
None
|
|
|
None
|
|
*Jin Siming served
as our President and Chief Executive Officer until March 29, 2018.
Employment
Agreements
We
do not have any employment agreements with any of our officers and directors, some of whom have performed services on our behalf
for no compensation.
Compensation
of Directors
Our
board of directors has not received any compensation to date.
None
of our executive officers or directors received equity awards, including, options, restricted stock or other equity incentives
during the fiscal year ended December 31, 2017, or held any equity awards at December 31, 2017.
ITEM
7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Related
Party Transactions
During the years
ended December 31, 2017 and 2016, we received advances of $163,504 and $7,212 from Dragon & Tiger Holding Limited, one of
our stockholders. We entered into a Credit Loan Agreement with D&T pursuant to which D&T has agreed to lend us up to $500,000.
All amounts borrowed are to bear interest at the rate of 10% per annum. Accrued interest through the end of 2018 and 2019 and
is to be paid no later than 90 days after the end of each year. All amounts borrowed and are to be repaid in full on or before
May 1, 2020. In addition to interest, D&T was issued three-year warrants to purchase 50,000,000 shares of the registrant’s
common stock at a price of $0.01 per share. The warrants cannot be exercised before April 1, 2019, and shall be void and non-exercisable
if the Company (i) raises more than $20 million in equity or (ii) has revenue in excess of $100 million in any fiscal year. To
date, D&T has advanced an aggregate of $210,951.
Mr. Mao Xu, our founder and a principal shareholder, is the founder and controlling
shareholder of Beijing QHY Environment S & T Co. Ltd. We licensed the technologies on which our business is based from Mr.
Mao and Beijing QHY. The License Agreement, as amended, requires that we pay Beijing QHY $1 million on or before December 31,
2021 and running royalties of 1% of our net revenues, as defined in the License. The Company recorded $37,500 license fee expense
for the year ended December 31, 2017, and made no payment of license fee as of December 31, 2017. No purchase was made by the
Company from the Licensor during the year ended December 31, 2017. The Company recorded a $12,500 and $25,000 license fee expense
for the three and six months ended June 30, 2018, respectively and made no payment of license fees as of June 30, 2018. The shareholder/licensor
owns 41.6% of the Company’s common stock.
We
currently maintain a corporate office at Suite 1515, 1501 Broadway, New York, NY, 10036. The office is provided to us by Rebus
Capital Group, an entity affiliated with Dragon & Tiger Holding Limited, as part of a financial advisory agreement pursuant
to which we pay Rebus $30,000 per quarter. The agreement has a term of five years but is cancellable by either party on sixty
days’ notice. Our telephone number is (212) 324 1876.
Promoters
and Certain Control Person
Each
of Messrs. Mao, Teng and Yu could be considered a promoter of our company.
Director
Independence
We
currently do not have any independent directors, as the term “independent” is defined by the rules of the Nasdaq Stock
Market.
ITEM
8. LEGAL PROCEEDINGS.
None.
Item
9. Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.
Market
Information
Our
common stock is quoted on OTC Pink under the symbol “YIHG”; however, an active trading market for our shares does not
exist.
Penny
Stock Regulations
Trading
in our shares is subject to the provisions of Section 15(g) and Rule 15g-9 of the Securities Exchange Act of 1934,
as amended (the Exchange Act”), commonly referred to as the “penny stock” rule. Section 15(g) sets forth certain
requirements for transactions in penny stocks and Rule 15g9(d)(1) incorporates the definition of penny stock as that
used in Rule 3a51-1 of the Exchange Act.
The
Securities and Exchange Commission (the “Commission”) generally defines penny stock to be any equity security that
has a market price less than $5.00 per share, subject to certain exceptions. Rule 3a51-1 provides that any equity security is
considered to be a penny stock unless that security is: registered and traded on a national securities exchange meeting specified
criteria set by the Commission; authorized for quotation on The NASDAQ Stock Market; issued by a registered investment company;
excluded from the definition on the basis of price (at least $5.00 per share) or the registrant’s net tangible assets; or exempted
from the definition by the Commission. Trading in the shares is subject to additional sales practice requirements on broker-dealers
who sell penny stocks to persons other than established customers and accredited investors, generally persons with assets in excess
of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse.
For
transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of such securities
and must have received the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction
involving a penny stock, unless exempt, the rules require the delivery, prior to the first transaction, of a risk disclosure document
relating to the penny stock market. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally, the monthly statements must be sent disclosing
recent price information for the penny stocks held in the account and information on the limited market in penny stocks. Consequently,
these rules may restrict the ability of broker dealers to trade and/or maintain a market in the Company’s common stock and may
affect the ability of shareholders to sell their shares.
Holders
As
of September 10, 2018, there were approximately 38 holders of record of our common stock.
Warrants
Except
for warrants to purchase 50,000,000 shares of our common stock issued to Dragon & Tiger Holding Limited, as part of the consideration
for a loan of up to $500,000, we have not issued any derivative securities, nor are there any warrants, options or other convertible
securities outstanding.
Dividends
Any
decisions regarding dividends will be made by our board of directors. We currently intend to retain and use any future earnings
for the development and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Our
board of directors has complete discretion on whether to pay dividends. Even if our board of directors decides to pay dividends,
the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general
financial condition, contractual restrictions and other factors that the board of directors may deem relevant.
Purchases
of Our Equity Securities
Neither
we nor any of our affiliates purchased any equity securities from our shareholders during the fiscal year ended December 31, 2017.
Item
10. Recent Sales of Unregistered Equity Securities.
We issued
46,839,439 shares of common stock and 19,000 shares of Series A Preferred Stock, convertible into an aggregate of 19,000,000 shares
of our common stock, to the holders of PBG Water Solutions Inc. pursuant to the Exchange Agreement consummated in January 2018.
All of the recipients of our shares were non-U.S. Persons (as defined in Rule 902(k) of Regulation S and the third was an accredited
investor (as defined in Regulation D). Consequently, the issuance was exempt from the registration requirements of the Securities
Act pursuant to the exemptions provided by Regulation S and Regulation D. Each share of Series A Preferred Stock was automatically
converted into 1,000 shares of common stock on April 18, 2018 upon the filing of a certificate of amendment to our Articles of
Incorporation increasing the authorized shares of our common stock to 1,000,000,000 shares. The certificates representing all
of the foregoing shares were endorsed with the customary restrictive Regulation S and Regulation D legends, as appropriate. At
the time of the issuance of such shares, our common stock was trading at approximately 8 cents per share and for reporting purposes,
we have valued the 46,839,439 shares of common stock and 19,000 shares of Series A Preferred Stock at an aggregate of $5.2 million.
Effective
May 1, 2018, we issued warrants to purchase 50,000,000 shares of our common stock to Dragon & Tiger Holding Limited, an entity
controlled by Mr. Teng, as part of the consideration for a loan of up to $500,000. The warrants are exercisable at a price of
one cent per share and cannot be exercised before April 1, 2019, and shall be void and non-exercisable if the Company (i) raises
more than $20 million in equity or (ii) has revenue in excess of $100 million in any fiscal year. Mr. Teng is an accredited investor
and the Warrant Agreement was endorsed with the customary restrictive Regulation D legends and, if appropriate, the shares issuable
upon exercise of the warrants will be endorsed with the customary restrictive Regulation D legends.
Item
11. Description of Registrant’s Securities to be Registered.
The
Company is authorized to issue up to 1,000,000,000 shares of common stock, $0.001 par value. As of May 10, 2018, we had outstanding
79,099,039 shares of common stock. The holders of our Common Stock are entitled to one vote per share held and have the sole right
and power to vote on all matters on which a vote of stockholders is taken. Voting rights are non-cumulative. Common
stockholders are entitled to receive dividends when, as, and if declared by the Board of Directors, out of funds legally available
therefore and to share pro rata in any distribution to stockholders. Upon liquidation, dissolution, or the winding up of
our Company, common stockholders are entitled to receive the net assets of our Company in proportion to the respective number
of shares held by them after payment of liabilities which may be outstanding. The holders of common stock do not have any
preemptive right to subscribe for or purchase any shares of any class of stock of the Company. The outstanding shares of
common stock will not be subject to further call or redemption and are fully paid and non-assessable. To the extent that additional
common shares are issued, the relative interest of existing stockholders will likely be diluted.
Our
Articles of Incorporation authorize the issuance by resolution of our Board of Directors of up to five million shares of “blank-check”
preferred stock in one or more series, the terms of which may be determined at the time of issuance as the Board of Directors
may determine, in its sole discretion, without further authorization by our stockholders. These terms could give the holders of
the preferred stock the right to vote as a series on particular matters, preferences ass to dividends and upon liquidation, conversion
rights, redemption rights and sinking fund provisions. The terms of any series of preferred may not be beneficial to common stock
holders, since they may adversely affect the voting power and diminish other rights of holders of our common stock and perpetuate
the board’s control over our company, and therefore could reduce the value of such common stock. Preferred stock may be issued
quickly with terms calculated to discourage, make more difficult, delay or prevent a change in control of our company or make
removal of management more difficult. In addition, specific rights granted to future holders of preferred stock could be used
to restrict our ability to merge with, or sell assets to, a third party. The ability of our board of directors to issue preferred
stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change-in-control,
which in turn could prevent our stockholders from recognizing a gain in the event that a favorable offer is extended and could
materially and negatively affect the market price of our common stock.
Transfer
Agent
Globex
Transfer, LLC
780
Deltona Blvd., Suite 202
Deltona,
FL 32725
(813)344-4490
Fax
(386)267-3124
Item
12. Indemnification of Directors and Officers.
Our
officers and directors are indemnified as provided by the Nevada Business Corporation Act and our Articles of Incorporation
.
Under
the Nevada Business Corporation Act, director immunity from liability to a company or its shareholders for monetary liabilities
applies automatically unless it is specifically limited by a company’s Articles of Incorporation. Our Articles of Incorporation
do not specifically limit our directors’ immunity. Excepted from that immunity are: (a) a willful failure to deal fairly
with the company or its stockholders in connection with a matter in which the director has a material conflict of interest; (b)
a violation of criminal law, unless the director had reasonable cause to believe that his or her conduct was lawful or no reasonable
cause to believe that his or her conduct was unlawful; (c) a transaction from which the director derived an improper personal
profit; and (d) willful misconduct.
Our
Articles of Incorporation provide that we will indemnify our directors and officers to the fullest extent permitted by law, provided,
however, that we may modify the extent of such indemnification by individual contracts with our directors and officers; and, provided,
further, that we shall not be required to indemnify any director or officer in connection with any proceeding, or part thereof,
initiated by such person unless such indemnification: (a) is expressly required to be made by law, (b) the proceeding was authorized
by our board of directors, (c) is provided by us, in our sole discretion, pursuant to the powers vested in us under law or (d)
is required to be made pursuant to the bylaws.
Item 13.
Financial Statements and Supplementary Data.
The
financial statements required by this Item begin on page F-1.
Item 14.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 15.
Financial Statements and Exhibits.
(a)
Financial Statements and Schedules
The
consolidated financial statements required to be filed as part of this Registration Statement are included in Item 13 hereof.
(b)
Exhibits
|
Exhibit
No.
|
|
Description
|
|
|
|
|
|
2.1
|
|
Exchange Agreement (Incorporated by reference to Exhibit 2.2 to Form 10 Registration Statement).
|
|
3.1
|
|
Articles of Incorporation. (Incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1/A Amendment No. 1 filed March 14, 2008
.
|
|
3.2
|
|
Certificate of Amendment to Articles of Incorporation changing the name of the Registrant (Incorporated by reference to Exhibit 3.1 to the Registrant’s Report on Form 8-K/A dated September 13, 2011).
|
|
3.3
|
|
Certificate of Amendment to Articles of Incorporation changing the name of the Registrant (Incorporated by reference to Exhibit 3.2 to the Registrant’s Report on Form 10-K dated September 13, 2011).
|
|
3.4
|
|
Amended
and Restated By Laws Registrant (Incorporated by reference to Exhibit 3.2 to the Registrant’s Report on Form
10-K filed March 30, 2012).
|
|
10.1
|
|
License and Requirement Supply Agreement among PBG Water Solutions International, Inc., Beijing QHY Environment S & T Co. Ltd. and Mao Xu (Incorporated by reference to Exhibit 10.1 to Form 10 Registration Statement).
|
|
10.2
|
|
Amendment
to License and Supply Agreement PBG Water Solutions International, Inc., Beijing QHY Environment S & T Co. Ltd. and Mao
Xu (Incorporated by reference to Exhibit 10.2 to Form 10 Registration Statement).
|
|
10.3
|
|
Credit
Loan Agreement PBG Water Solutions International, Inc., the Registrant and Dragon & Tiger Holding Limited (Incorporated
by reference to Exhibit 10.3 to Form 10 Registration Statement).
|
|
10.4
|
|
Warrant
issued to Dragon & Tiger Holding Limited (Incorporated by reference to Exhibit 10.4 to Form 10 Registration Statement).
|
|
10.5
|
|
Agreement dated February 20, 2018, between the Registrant and Rebus Capital Group and Pluris Capital Group.
|
|
21.1
|
|
Subsidiaries
|
SIGNATURES
Pursuant
to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
Yakun
International Investment and Holding Group
|
|
|
|
|
|
Date:
September 12, 2018
|
By:
|
/s/
Mao Xu
|
|
|
|
Mao
Xu
|
|
|
|
Chief
Executive Officer (principal executive officer)
|
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
of
Yakun International Investment and Holding Group
(Previously referred as PBG Water
Solutions International Inc.)
Opinion
on the Financial Statements
We have audited
the accompanying balance sheets of Yakun International Investment and Holding Group (Previously referred as PBG Water Solutions
International Inc. or the “Company”) as of December 31, 2017 and 2016, and the related statements of operations, changes
in stockholders’ deficits and statements of cash flows, for the year ended December 31, 2017 and the period from August
4, 2016 (incorporation date) to December 31, 2016, and the related notes (collectively referred to as the financial statements).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of
the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows, for the year ended December
31, 2017 and the period from August 4, 2016 (incorporation date) to December 31, 2016, in conformity with accounting principles
generally accepted in the United States of America.
Emphasis
of Matter - Going Concern
The accompanying
financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial
statements, although the Company has limited operations it has yet to attain profitability. This raises substantial doubt about
its ability to continue as a going concern. Management’s plan in regard to these matters is also described in Note 2. The
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for
Opinion
These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted
our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to perform, an audit of internal control over financial reporting. As
part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose
of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we
express no such opinion.
Our audits
included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that our audits provide a reasonable basis for our opinion.
/s/ Yu Certified Public Accountant
PC
We have served as the Company’s
auditor since 2018.
New York, New York
September 12, 2018
Certified
Public Accountants
99
Madison Avenue, Suite 601, New York NY 10016
Tel:
347-618-9237, 718-813-2130
Email:
Info@ywlcpa.com
Yakun International
Investment and Holding Group
BALANCE
SHEETS
(Expressed
in U.S. dollars)
|
|
|
As of December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
11,500
|
|
|
|
5,000
|
|
|
Due to related parties
|
|
|
208,216
|
|
|
|
7,212
|
|
|
Total current liabilities
|
|
|
219,716
|
|
|
|
12,212
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit
|
|
|
|
|
|
|
|
|
|
Preferred stock, 5,000,000 shares authorized, 0 shares outstanding
|
|
|
-
|
|
|
|
-
|
|
|
Common stock, $0.001 par value; 70,000,000 shares authorized,
13,259,600 shares issued and outstanding at December 31, 2017 and 2016
|
|
|
13,260
|
|
|
|
13,260
|
|
|
Additional paid in capital
|
|
|
(36,851
|
)
|
|
|
(36,851
|
)
|
|
Retained earnings
|
|
|
(196,125
|
)
|
|
|
11,379
|
|
|
Total stockholders’ deficit
|
|
|
(219,716
|
)
|
|
|
(12,212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ deficit
|
|
$
|
-
|
|
|
$
|
-
|
|
See
notes to the financial statements.
Yakun International
Investment and Holding Group
STATEMENTS
OF OPERATIONS AND CONPREHENSIVE INCOME
(Expressed
in U.S. dollars)
|
|
|
Year ended
December 31,
2017
|
|
|
Period from
August 4,
2016
(Incorporation
Date) to
December 31,
2016
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Cost of Revenue
|
|
|
-
|
|
|
|
-
|
|
|
Gross profit
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Professional fees
|
|
|
35,950
|
|
|
|
5,000
|
|
|
Professional fees –
related party
|
|
|
114,402
|
|
|
|
-
|
|
|
License and royalty fee
|
|
|
37,500
|
|
|
|
-
|
|
|
General
and administrative
|
|
|
19,652
|
|
|
|
7,212
|
|
|
Total
expenses
|
|
|
207,504
|
|
|
|
12,212
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(207,504
|
)
|
|
$
|
(12,212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
Total comprehensive income
|
|
|
(207,504
|
)
|
|
|
(12,212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share – basic and diluted
|
|
$
|
(0.016
|
)
|
|
$
|
(0.001
|
)
|
|
Weighted average number of shares outstanding –
basic and diluted
|
|
|
13,259,600
|
|
|
|
13,259,600
|
|
See
notes to the financial statements
Yakun International
Investment and Holding Group
STATEMENTS
OF CHANGES IN STOCKHOLDERS’ DEFICIT
(Expressed
in U.S. dollars)
|
|
|
Common Stocks
|
|
|
Additional
Paid-in
|
|
|
Retained
|
|
|
Total
Stockholders’
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
earnings
|
|
|
deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of August 4, 2016
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recapitalization- PBG Water and Yakun International
|
|
|
13,259,600
|
|
|
|
13,260
|
|
|
|
(36,851
|
)
|
|
|
23,591
|
|
|
|
-
|
|
|
Net loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,212
|
)
|
|
|
(12,212
|
)
|
|
Balance as of December 31, 2016
|
|
|
13,259,600
|
|
|
$
|
13,260
|
|
|
|
(36,851
|
)
|
|
$
|
11,379
|
|
|
$
|
(12,212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(207,504
|
)
|
|
|
(207,504
|
)
|
|
Balance as of December 31, 2017
|
|
|
13,259,600
|
|
|
$
|
13,260
|
|
|
|
(36,851
|
)
|
|
$
|
(196,125
|
)
|
|
$
|
(219,716
|
)
|
See
notes to the financial statements
Yakun International
Investment and Holding Group
STATEMENTS
OF CASH FLOWS
(Expressed
in U.S. dollars)
|
|
|
Year
ended
December 31,
2017
|
|
|
Period from
August 4,
2016
(Incorporation
Date) to
December 31,
2016
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(207,504
|
)
|
|
$
|
(12,212
|
)
|
|
Adjustments to reconcile net loss to net cash used
in operating activities:
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
-
|
|
|
|
-
|
|
|
Accounts payable
|
|
|
6,500
|
|
|
|
5,000
|
|
|
License fee payable –
related party
|
|
|
37,500
|
|
|
|
-
|
|
|
Net cash used in operating
activities
|
|
|
(163,504
|
)
|
|
|
(7,212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing
activities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Due to related parties
|
|
|
163,504
|
|
|
|
7,212
|
|
|
Net cash provided by financing
activities
|
|
|
163,504
|
|
|
|
7,212
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
-
|
|
|
|
-
|
|
|
Cash and cash equivalents at
beginning of year
|
|
|
-
|
|
|
|
-
|
|
|
Cash and cash equivalents at end
of year
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
See
notes to the financial statements
Yakun International
Investment and Holding Group
NOTES
TO FINANCIAL STATEMENTS
(Expressed
in U.S. dollars)
|
|
1.
|
Organization
and principal activities
|
PBG
Water Solutions International Inc. (the “Company”, “PBG Water Solutions” or “we”)
was
incorporated under the law of the State of Delaware on August 4, 2016, and in October 2017, it merged into a company with the
same name incorporated under the law of the State of Nevada on October 18, 2017. PBG Water Solutions is engaged in developing
wastewater treatment and solution technics and business.
In November
2017, the Company and its shareholders entered into a Share Exchange Agreement (the ” SEA”) with Yakun International
Investment & Holding Group (the “Yakun International”),
pursuant to which
Yakun International will acquired 100% of the outstanding shares of the Company in exchange for 46,839,439 shares of common stocks
of Yakun International and 19,000 shares of Series A Convertible Preferred Stocks (each Series A Convertible Preferred Stock is
convertible into 1,000 share of common stock) of Yakun International, which will constitute approximately 83% of Yakun International’s
issued and outstanding capital stock on a fully-diluted basis as of and immediately after the consummation of the acquisition
pursuant to the SEA. On January 15, 2018, all parties to the SEA agreed to amend the original agreement and consummate the transaction
forthwith. Shareholders of PBG Water solutions took control of Yakun International on the same date, and completed Yakun International’s
registry of new officers and directors as of the issuance of these financial statements.
The transaction
was accounted for as a “reverse acquisition” since, immediately following completion of the transaction, the shareholders
of PBG Water Solutions effectively controlled the post-combination Company. For accounting purposes, PBG Water Solutions was deemed
to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of PBG Water
Solutions (i.e., a capital transaction involving the issuance of shares by the Company for the shares of PBG Water Solutions).
Accordingly, the consolidated assets, liabilities and results of operations of PBG Water Solutions and Yakun International became
the historical financial statements of Yakun International and its subsidiaries, and the Company’s assets, liabilities and
results of operations were consolidated with PBG Water Solutions beginning on the acquisition date. No step-up in basis or intangible
assets or goodwill were recorded in this transaction.
The
Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable
to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business.
The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue
as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s obtaining adequate
capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be
forced to cease operations.
In
order to continue as a going concern, the Company will need, among other things, additional capital resources. Successful completion
of the Company’s engagement in water solutions business and its transition to attaining profitable operations, is dependent
upon obtaining additional financing by the Company and Yakun International. The Company and Yakun International plan to improve
its future liquidity by obtaining additional financing through the issuance of financial instruments such as equity and warrants
or through credit loans. Additional financing may not be available on acceptable terms or at all. If Yakun International issues
additional equity securities to raise funds, the ownership percentage of existing stockholders would be reduced. New investors
may demand rights, preferences or privileges senior to those of existing holders of common stock.
The
ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described
in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
|
|
3.
|
Summary
of significant accounting policies
|
|
|
(a)
|
Basis
of presentation
|
The
accompanying financial statements have been presented in accordance with accounting principles generally accepted in the United
States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission
(“SEC”).
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Management
makes these estimates using the best information available at the time the estimates are made; however, actual results could differ
from those estimates.
Current
income taxes are provided for in accordance with the laws of the relevant taxing authorities. As part of the process of preparing
financial statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates.
The Company accounts for income taxes using the assets and liability method. Under this method, deferred income taxes are recognized
for tax consequences in future years of differences between the tax bases of assets and liabilities and their reported amounts
in the financial statements at each year-end. Deferred tax assets and liabilities are measured using enacted tax rates applicable
for the differences that are expected to affect taxable income.
The
Company adopts a more likely than not threshold and a two-step approach for the tax position measurement and financial statement
recognition. Under the two-step approach, the first step is to evaluate the tax position for recognition by determining if the
weight of available evidence indicates that it is more likely than not that the position will be sustained, including resolution
of related appeals or litigation process, if any. The second step is to measure the tax benefit as the largest amount that is
more than 50% likely of being realized upon settlement. As of December 31, 2017 and 2016, the Company did not have any uncertain
tax positions.
|
|
(d)
|
Functional
currency and foreign currency translation and transactions
|
The
Company’s functional and reporting currency is the U.S. dollar (“US$”). Transactions denominated in currencies
other than the functional currency are translated into prevailing functional currency at the exchange rates prevailing at the
late date of the months the transactions occurred. The Company had no monetary assets and liabilities denominated in foreign currencies
at the balance sheet dates.
Basic
loss per share is computed using the weighted average number of common shares outstanding during the year. Diluted loss per share
is computed using the weighted average number of common shares and potential common shares outstanding during the period for options
and restricted shares under treasury stock method and for convertible debts under if-convertible method, if dilutive. Potential
common shares are not included in the denominator of the diluted earnings per share calculation when inclusion of such shares
would be anti-dilutive, such as in a period in which a net loss is recorded. The Company has no potential common shares outstanding
as of December 31, 2017 and 2016.
Parties
are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant
influence over the other party in making financial and operating decisions. Parties are also considered to be related if they
are subject to common control or significant influence, such as a family member or relative, stockholder, or a related corporation.
|
|
(g)
|
Recently
issued accounting standards not yet adopted
|
The
Company reviews new accounting standards as issued. Although some of these accounting standards issued or effective after the
end of the Company’s previous fiscal year may be applicable to the Company, it has not identified any standards that it
believes merit further discussion. The Company does not expect the adoption of any recently issued accounting pronouncements to
have a significant impact on its financial position, results of operations, or cash flows.
|
|
4.
|
Related
party transactions and balances
|
|
|
a)
|
Related
party transactions:
|
|
|
|
Year
ended
December 31,
2017
|
|
|
Period from
August 4,
2016
(Incorporation
Date) to
December 31,
2016
|
|
|
Loan from a shareholder
|
|
$
|
163,504
|
|
|
$
|
7,212
|
|
|
Fee for professional service provided by a director
|
|
|
114,402
|
|
|
|
-
|
|
|
License fee expense to a shareholder
|
|
|
37,500
|
|
|
|
-
|
|
Loan
from a shareholder was a non-interest bearing fund from one of Company’s shareholder to pay for the Company and subsidiary’s
expenses during the year ended December 31, 2017 and the period from inception to December 31, 2016. The shareholder owned 25%
common stocks of the Company.
The
Company’s sole director from inception to December 31, 2017 is an attorney and provided legal services to the Company during
the year ended December 31, 2017 with a service fee of $114,402.
In
April 2017, the Company ended into a License and Supply Agreement with an individual shareholder who owned 50% of the Company’s
common stocks and the shareholder’s majority owned company Beijing QHY Environment S & T Co., Ltd. (Beijing QHY). Pursuant
to the License and Supply Agreement and its Amendment in June 2017, the individual shareholder and Beijing QHY (the “Licensor”)
granted the exclusive use of 21 intellectual properties in any area outside People’s Republic of China (the “PRC”)
for 20 years. License fee, which is a one-time fee of $1 million which shall be paid before December 31, 2021, and 1% of the net
revenue the Company received from the sales, license or other distributions of the licensed products which shall be paid annually.
In addition, the Licensor shall supply the Company licensed products at price agreed or adjusted by the Licensor and the Company.
The Company didn’t generate any net revenue from nor made any purchase of the licensed products during the year ended December
31, 2017. The Company recorded $37,500 license fee expense for the year ended December 31, 2017, and made no payment of license
fee as of December 31, 2017. No purchase was made by the Company from the Licensor during the year ended December 31, 2017.
|
|
b)
|
Related
party payables
|
|
|
|
December
31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Due to shareholders
|
|
$
|
208,216
|
|
|
$
|
7,212
|
|
We
did not provide any current or deferred U.S. federal income tax provision or benefit for any of the periods presented because
we have experienced operating losses. When it is more likely than not that a tax asset cannot be realized through future income
the Company must allow for this future tax benefit. We provided a full valuation allowance on the net deferred tax asset, consisting
of net operating loss carryforwards, because management has determined that it is more likely than not that we will not earn income
sufficient to realize the deferred tax assets during the carryforward period.
The
Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the twelve-months
ended December 31, 2017 and 2016, or during the prior three years applicable under FASB ASC 740. We did not recognize any adjustment
to the liability for uncertain tax position and therefore did not record any adjustment to the beginning balance of accumulated
deficit on the balance sheet. All tax returns have been appropriately filed by the Company.
|
Income tax provision at the federal
statutory rate
|
|
|
21
|
%
|
|
Effect of operating losses
|
|
|
(21
|
%)
|
|
|
|
|
-
|
%
|
Net
deferred tax assets consist of the following:
|
|
|
December
31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Net operating loss carry forward
|
|
$
|
46,140
|
|
|
$
|
2,564
|
|
|
Valuation allowance
|
|
|
(46,140
|
)
|
|
|
(2,564
|
)
|
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
A
reconciliation of income taxes computed at the statutory rate is as follows:
|
|
|
Year
ended
December 31,
2017
|
|
|
Period
from August 4,
2016 (Incorporation
Date) to December 31,
2016
|
|
|
Tax at statutory rate (21%)
|
|
$
|
43,576
|
|
|
$
|
2,564
|
|
|
Increase in valuation allowance
|
|
|
(43,576
|
)
|
|
|
(2,564
|
)
|
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company did not pay any income taxes during the years ended December 31, 2017 or 2016.
In
accordance with FASB standard, we evaluated subsequent events through the date we filed this report with the Securities and Exchange
Commission (“SEC”) and no subsequent events occurred that required disclosure in the accompanying consolidated financial
statements except the following:
Consummation
of SEA
On
January 15, 2018, all parties to the SEA agreed to amend the original agreement and consummate the transaction forthwith. Shareholders
of PBG Water solutions took control of Yakun International on the same date, and completed the Yakun International’s registry
of new officers and directors as of the issuance of this financial statement.
Credit
Loan Agreement
On
May 1, 2018, the Company and Yakun International, the Company’s parent company after the consummation of SEA, entered into
a Credit Loan Agreement with a 20.8% shareholder of Yakun who was the Company’s 25% shareholder before the SEA consummation
(the “Lender”). The Lender had provided operation capital to the Company since its inception. Pursuant to the Credit
Loan Agreement, the Lender will provide a loan credit sum of $500,000 to Yakun and the Company for 2 years with 10% annual interest
which shall be applied from the date of the Credit Loan Agreement. In compensation for the loan credit, Yakun shall issue to the
Lender a 3-year cash-less warrant, which entitles the Lender to purchase 50 million (50,000,000) shares of Yakun’s common
stock at an exercise price of $0.01. The warrants cannot be exercised before April 1, 2019, and shall be void and non-exercisable
if the Company (i) raises more than $20 million in equity or (ii) has revenue in excess of $100 million in any fiscal year.
Financial
Advisory Agreement
In
February 2018, the Company entered into a financial advisory agreement with Rebus Capital Group (“Rebus”) and Pluris
Capital Group (the “Pluris”), entities affiliated with Dragon & Tiger Holding Limited, pursuant to which the Company
will pay Rebus $30,000 per quarter. The agreement has a term of five years from March 2018 but is cancellable by either party
on sixty days’ notice. The service fee for the first 3 months is waived by Rebus.
Below are the unaudited financial statements and disclosure
notes of Yakun International Investment and Holding Group after reverse acquisition.
Yakun
International Investment and Holding Group
UNAUDITED
CONSOLIDATED BALANCE SHEETS
(Expressed
in U.S. dollars)
|
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
16,976
|
|
|
|
11,500
|
|
|
|
|
|
-
|
|
|
|
208,216
|
|
|
Total current liabilities
|
|
|
16,976
|
|
|
|
219,716
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term loan from a shareholder and interest payable
|
|
|
367,211
|
|
|
|
-
|
|
|
Total liabilities
|
|
|
384,187
|
|
|
|
219,716
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit
|
|
|
|
|
|
|
|
|
|
Preferred stock, 5,000,000 shares authorized, 0 shares outstanding
|
|
|
-
|
|
|
|
-
|
|
|
Common stock, $0.001 par value; 1,000,000,000 and
70,000,000 shares authorized, 79,099,039 and 13,259,600 shares issued and outstanding at June 30, 2018 and December 31,
2017
|
|
|
13,260
|
|
|
|
13,260
|
|
|
Additional paid in capital
|
|
|
4,503,149
|
|
|
|
(36,851
|
)
|
|
Accumulated deficit
|
|
|
(4,900,315
|
)
|
|
|
(196,125
|
)
|
|
Total stockholders’ deficit – controlling interest
|
|
|
(383,906
|
)
|
|
|
(219,716
|
)
|
|
Non-controlling interest
|
|
|
(281
|
)
|
|
|
-
|
|
|
Total shareholders’ deficit
|
|
|
(384,187
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ deficit
|
|
$
|
-
|
|
|
$
|
-
|
|
See
notes to the unaudited consolidated financial statements
Yakun International Investment and
Holding Group
UNAUDITED CONSOLIDATED
STATEMENTS OF OPERATIONS
AND COMPREHENSIVE
LOSS
(Expressed
in U.S. dollars)
|
|
|
Three Months ended
June 30,
|
|
|
Six Months ended
June 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Cost of Revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Gross profit
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Listing fees
|
|
|
3,350
|
|
|
|
-
|
|
|
|
3,596
|
|
|
|
-
|
|
|
Professional fees
|
|
|
86,010
|
|
|
|
29,450
|
|
|
|
98,510
|
|
|
|
39,450
|
|
|
General and administrative
|
|
|
19,433
|
|
|
|
4,052
|
|
|
|
35,450
|
|
|
|
9,549
|
|
|
Total operating expenses
|
|
|
108,793
|
|
|
|
33,502
|
|
|
|
137,556
|
|
|
|
48,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expenses
|
|
|
3,324
|
|
|
|
-
|
|
|
|
3,324
|
|
|
|
-
|
|
|
Cost of issuing warrants for credit loan
|
|
|
4,540,000
|
|
|
|
-
|
|
|
|
4,540,000
|
|
|
|
-
|
|
|
Total other expenses
|
|
|
4,543,324
|
|
|
|
-
|
|
|
|
4,543,324
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,652,117
|
)
|
|
$
|
(33,502
|
)
|
|
$
|
(4,680,880
|
)
|
|
$
|
(48,999
|
)
|
|
Net loss attributable to non-controlling interest
|
|
|
281
|
|
|
|
-
|
|
|
|
281
|
|
|
|
-
|
|
|
Net loss attributable to controlling interest
|
|
|
(4,651,836
|
)
|
|
|
(33,502
|
)
|
|
|
(4,680,599
|
)
|
|
|
(48,999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total comprehensive income
|
|
$
|
(4,651,836
|
)
|
|
$
|
(33,502
|
)
|
|
$
|
(4,680,599
|
)
|
|
$
|
(48,999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share – basic and diluted
|
|
$
|
(0.351
|
)
|
|
$
|
(0.003
|
)
|
|
$
|
(0.353
|
)
|
|
|
(0.004
|
)
|
|
Weighted average number of shares outstanding – basic and diluted
|
|
|
13,259,600
|
|
|
|
13,259,600
|
|
|
|
13,259,600
|
|
|
|
13,259,600
|
|
See notes to
the unaudited consolidated financial statements
Yakun International
Investment and Holding Group
UNAUDITED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Expressed
in U.S. dollars)
|
|
|
Six Months ended
June 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,680,880
|
)
|
|
$
|
(48,999
|
)
|
|
Interest expenses
|
|
|
3,324
|
|
|
|
-
|
|
|
Cost of issuing warrants for credit loan
|
|
|
4,540,000
|
|
|
|
-
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(54,861
|
)
|
|
|
-
|
|
|
Net cash used in operating activities
|
|
|
(192,416
|
)
|
|
|
(48,999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Cash proceeds from shareholder loan
|
|
|
192,416
|
|
|
|
48,999
|
|
|
Net cash provided by financing activities
|
|
|
192,416
|
|
|
|
48,999
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
-
|
|
|
|
-
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
-
|
|
|
|
-
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
See notes to
the unaudited consolidated financial statements
Yakun International
Investment and Holding Group
NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed
in U.S. dollars)
1. Organization and principal activities
Yakun
International Investment and Holding Group (the “Company”, “Yakun International”, or “we”)
formerly named Rhino Productions, Inc. (“Rhino Productions”) was
incorporated under the laws of the State
of Nevada on October 16, 2007
.
In November
2017, Yakun International entered into a Share Exchange Agreement (the “PBG SEA”) with PBG Water Solutions International
Inc. (the “PBG Water Solutions”) and its shareholders,
pursuant to which Yakun
International acquired 100% of the outstanding shares of PBG Water Solutions in exchange for 46,839,439 shares of common stock
of the Company and 19,000 shares of Series A Convertible Preferred Stock (each Series A Convertible Preferred Stock is convertible
into 1,000 shares of common stock) of the Company, which constituted approximately 83% of the Company’s issued and outstanding
capital stock on a fully-diluted basis as of and immediately after the consummation of the acquisition pursuant to the PBG SEA.
PBG Water Solutions was incorporated under the law of the State of Delaware on August 4, 2016, and in October 2017, it merged
into a company with the same name incorporated under the law of the State of Nevada. On January 15, 2018, all parties to the SEA
agreed to amend the original agreement and consummate the transaction forthwith. Shareholders of PBG Water solutions took control
of Yakun International on the same date, and completed Yakun International’s registry of new officers and directors as of
the issuance of these financial statements. PBG Water Solutions has not generated revenue as of today.
The transaction
was accounted for as a “reverse acquisition” since, immediately following completion of the transaction, the shareholders
of PBG Water Solutions effectively controlled the post-combination Company. For accounting purposes, PBG Water Solutions was deemed
to be the accounting acquirer in the transaction and, consequently, the transaction is treated as a recapitalization of PBG Water
Solutions (i.e., a capital transaction involving the issuance of shares by the Company for the shares of PBG Water Solutions).
Accordingly, the consolidated assets, liabilities and results of operations of PBG Water Solutions and Yakun International became
the historical financial statements of Yakun International and its subsidiaries, and the Company’s assets, liabilities and
results of operations were consolidated with PBG Water Solutions beginning on the acquisition date. No step-up in basis or intangible
assets or goodwill were recorded in this transaction.
On December
21, 2017,
Yakun International incorporated QHY Water Solutions International Corp (the “QHY
Water Solutions”) under the law of State of Nevada as its wholly owned subsidiary.
On March 8, 2018, QHY Water Solutions
incorporated QHY Environmental Science & Technologies Oceania Limited (the “QHY Oceania”) under the law of New
Zealand. QHY Oceania is 51% owned by QHY Water Solutions, and 49% owned by a New Zealand company. On April 17, 2018, QHY Water
Solutions incorporated QHY New Zealand LLC (the “QHY NZ”) under the law of the State of Nevada as a Limited Liability
Company. QHY NZ is 51% owned by QHY Water Solutions, and 49% owned by a third party.
Currently,
QHY Water Solutions, QHY Oceania and QHY NZ have not generated any revenue.
2. Going concern
The Company’s
unaudited financial statements are prepared using accounting principles generally accepted in the United States of America applicable
to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business.
The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue
as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s obtaining adequate
capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be
forced to cease operations.
In order to
continue as a going concern, the Company will need, among other things, additional capital resources. Successful completion of
the Company’s engagement in water solutions business and its transition to attaining profitable operations, is dependent
upon obtaining additional financing. The Company plans to improve its future liquidity by obtaining additional financing through
the issuance of financial instruments such as equity and warrants or through credit loans. Additional financing may not be available
on acceptable terms or at all. If the Company issues additional equity securities to raise funds, the ownership percentage of
existing stockholders would be reduced. New investors may demand rights, preferences or privileges senior to those of existing
holders of common stock.
The ability
of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in
the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial
statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
3. Summary of significant accounting policies
(a) Basis of presentation and principles of consolidation
The unaudited
consolidated interim financial statements are prepared and presented in accordance with accounting principles generally accepted
in the United States of America (“U.S. GAAP”).
The unaudited
consolidated interim financial information as of June 30, 2018 and for the three and six months ended June 30, 2018 and 2017 have
been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain
information and footnote disclosures, which are normally included in complete consolidated financial statements prepared in accordance
with U.S. GAAP, have been omitted pursuant to those rules and regulations. The unaudited consolidated interim financial information
should be read in conjunction with the audited financial statements and the notes thereto, included in the Form 10 filed on May
14, 2018.
In the opinion
of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s
consolidated financial position as of June 30, 2018, its consolidated results of operations for the three and six months ended
June 30, 2018 and 2017, and its consolidated cash flows for the six months ended June 30, 2018 and 2017, as applicable, have been
made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any
future periods.
The consolidated
interim financial statements include the financial statements of all the subsidiaries of the Company. All accounts and balances
between the Company and its subsidiaries have been eliminated upon consolidation.
(b) Use of estimates
The preparation
of financial statements in conformity with generally accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Management
makes these estimates using the best information available at the time the estimates are made; however, actual results could differ
from those estimates.
(c) Income Taxes
Current income
taxes are provided for in accordance with the laws of the relevant taxing authorities. As part of the process of preparing financial
statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. The Company
accounts for income taxes using the assets and liability method. Under this method, deferred income taxes are recognized for tax
consequences in future years of differences between the tax bases of assets and liabilities and their reported amounts in the
financial statements at each year-end. Deferred tax assets and liabilities are measured using enacted tax rates applicable for
the differences that are expected to affect taxable income.
The Company
adopts a more likely than not threshold and a two-step approach for the tax position measurement and financial statement recognition.
Under the two-step approach, the first step is to evaluate the tax position for recognition by determining if the weight of available
evidence indicates that it is more likely than not that the position will be sustained, including resolution of related appeals
or litigation process, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely
of being realized upon settlement. As of June 30, 2018, the Company did not have any uncertain tax positions.
(d) Share
Based Expenses
FASB ASC 718
“Compensation - Stock Compensation” prescribes accounting and reporting standards for all stock-based payments awarded
to employees, including employee stock options, restricted stock, employee stock purchase plans and stock appreciation rights,
and may be classified as either equity or liabilities. The Company determines if a present obligation to settle the share-based
payment transaction in cash or other assets exists. A present obligation to settle in cash or other assets exists if: (a) the
option to settle by issuing equity instruments lacks commercial substance or (b) the present obligation is implied because of
an entity’s past practices or stated policies. If a present obligation exists, the transaction should be recognized as a
liability; otherwise, the transaction should be recognized as equity. The Company accounts for stock-based compensation issued
to non-employees and consultants in accordance with the provisions of FASB ASC 505-50 “Equity - Based Payments to Non-Employees.”
Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable:
(a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction
is determined at the earlier of performance commitment date or performance completion date.
(e) Loss per share
Basic
loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted loss per
share is computed using the weighted average number of common shares and potential common shares outstanding during the period
for options and restricted shares under treasury stock method and for convertible debts under if-convertible method, if dilutive.
Potential common shares are not included in the denominator of the diluted earnings per share calculation when inclusion of such
shares would be anti-dilutive, such as in a period in which a net loss is recorded.
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Dilutive shares not included in loss per share computation
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Warrants
|
|
|
50,000,000
|
|
|
|
-
|
|
|
|
50,000,000
|
|
|
|
-
|
|
(f) Related parties
Parties are
considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant
influence over the other party in making financial and operating decisions. Parties are also considered to be related if they
are subject to common control or significant influence, such as a family member or relative, stockholder, or a related corporation.
(g) Functional currency and foreign currency
translation and transactions
The Company’s functional and
reporting currency is the U.S. dollar (“US$”). Transactions denominated in currencies other than the functional currency
are translated into the functional currency at the exchange rates prevailing at the last date of the months the transactions occurred.
The Company had no monetary assets and liabilities denominated in foreign currencies at the balance sheet dates.
(h) Non-controlling Interests in Consolidated
Financial Statements
Accounting guidance on non-controlling
interests in consolidated financial statements requires that a non-controlling interest in the equity of a subsidiary be accounted
for and reported as equity, provides revised guidance on the treatment of net income and losses attributable to the non-controlling
interest and changes in ownership interests in a subsidiary and requires additional disclosures that identify and distinguish
between the interests of the controlling and non-controlling owners. Net loss attributable to the non-controlling interests totalled
$281 for the three and six months ended June 30, 2018.
(i) Recently issued accounting standards not
yet adopted
The company does not expect the adoption
of any recent accounting standards to have a material impact on its financial statements except for:
In February 2016, the FASB issued an
ASU amending the accounting for leases. The new guidance requires the recognition of lease assets and liabilities for operating
leases with terms of more than 12 months, in addition to those currently recorded, on the company’s consolidated balance
sheets. Presentation of leases within the consolidated statements of operations and consolidated statements of cash flows will
be generally consistent with the current lease accounting guidance. The ASU is effective for reporting periods beginning after
December 15, 2018, with early adoption permitted. The company plans to adopt this ASU beginning in the quarter ending March 31,
2019. The company is currently evaluating the impact on its consolidated financial statements, primarily to the consolidated balance
sheets and related disclosures.
In February 2018, the FASB issued guidance
to address the income tax accounting treatment of the tax effects within other comprehensive income due to the enactment of the
Tax Cuts and Jobs Act (the “Act”). This guidance allows entities to elect to reclassify the tax effects of the change
in the income tax rates from other comprehensive income to retained earnings. The guidance is effective for periods beginning
after December 15, 2018 although early adoption is permitted.
In March 2018, the FASB issued ASU
2018-05: “Income Taxes (Topic 740)-Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118”.
The amendments in this ASU add various SEC paragraphs pursuant to the issuance of SEC Staff Accounting Bulletin No. 118, which
expresses the view of the staff regarding application of Topic 740, Income Taxes, in the reporting period that includes December
22, 2017 - the date on which the Tax Cuts and Jobs Act was signed into law. The Company is in the process of evaluating the impact
of these amendments on its consolidated financial position and results of operations.
4. Related party transactions and balances
a) Related party transactions
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Loan from a shareholder
|
|
$
|
24,489
|
|
|
$
|
33,502
|
|
|
$
|
39,480
|
|
|
$
|
48,999
|
|
|
Interest expense to a shareholder
|
|
|
3,324
|
|
|
$
|
-
|
|
|
|
3,324
|
|
|
$
|
|
|
|
Fair value of warrants issued to a shareholder
|
|
|
4,540,000
|
|
|
|
-
|
|
|
|
4,540,000
|
|
|
|
-
|
|
|
Fee for professional services provided by related parties
|
|
|
84,260
|
|
|
|
-
|
|
|
|
93,760
|
|
|
|
10,000
|
|
|
License fee expense to a related party
|
|
|
12,500
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
-
|
|
b) Related party payables
|
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Long-term loan from a shareholder
|
|
$
|
210,951
|
|
|
$
|
-
|
|
|
Payable to a shareholder
|
|
|
-
|
|
|
|
170,716
|
|
|
Interest payable to a shareholder
|
|
|
3,324
|
|
|
|
-
|
|
|
Payable to a related party for license fee
|
|
|
62,500
|
|
|
|
37,500
|
|
|
Professional fee payable to related parties
|
|
|
93,760
|
|
|
|
-
|
|
On May 1,
2018, PBG Water Solutions and Yakun International, entered into a Credit Loan Agreement with a 20.8% shareholder of Yakun International
(the “Lender”). The Lender had provided operating capital to PBG Water Solutions since its inception, and to Yakun
International since the consummation of PBG SEA. Pursuant to the Credit Loan Agreement, the Lender will provide a loan of $500,000
to the Company for 2 years with 10% annual interest which shall be applied from the date of the Credit Loan Agreement. In compensation
for the loan credit, the Company issued to the Lender a 3-year cashless warrant, which entitles the Lender to purchase 50 million
(50,000,000) shares of the Company’s common stock at an exercise price of $0.01. The warrant cannot be exercised before
April 1, 2019, and shall be void and non-exercisable if the Company (i) raises more than $20 million in equity or (ii) has revenue
in excess of $100 million in any fiscal year. As of June 30, 2018 and December 31, 2017, the Lender has provided $210,951
and $170,716 to the Company, respectively. During the three and six months ended June 30, 2018, the Lender provided $24,489 and
$39,480 to the Company, respectively. During the three and six months ended June 30, 2017, the Lender provided $33,502 and $48,999
to the Company, respectively. During the three and six months ended June 30, 2018, the Company recorded $3,324 interest expense
incurred from the loan. During the three and six months ended June 30, 2018, the Company recorded $4,540,000 cost for issuing
the warrant to the shareholder (see Note 5).
PBG Water
Solutions’ sole director from inception to December 31, 2017 is an attorney and provided legal services to PBG Water Solutions
during the six months ended June 30, 2017 with a service fee of $10,000. During the three and six months ended June 30, 2018,
service of $55,760 was provided.
In February
2018, PBG Water Solutions entered into a financial advisory agreement with Rebus Capital Group (the “Rebus”), an entity
affiliated with a shareholder of the Company, pursuant to which PBG Water Solutions will pay Rebus $30,000 per quarter. The agreement
has a term of five years from March 2018 but is cancellable by either party on sixty days’ notice. The service fee for the
first 3 months was waived by Rebus. Professional service expense related to this agreement was $28,500 and $38,000 for the three
and six months ended June 30, 2018, respectively.
In April 2017,
PBG Water Solutions entered into a License and Supply Agreement with an individual shareholder who owned 50% of PBG Water Solutions’
common stock and the shareholder’s majority owned company Beijing QHY Environment S & T Co., Ltd. (Beijing QHY). Pursuant
to the License and Supply Agreement and its Amendment entered into in June 2017, the individual shareholder and Beijing QHY (the
“Licensor”) granted PBG the exclusive use of 21 patents in any area outside the People’s Republic of China (the
“PRC”) for 20 years. A one-time fee of $1 million shall be paid before December 31, 2021, and royalties of 1% of the
net revenue received by PBG from the sale, license or other distribution of the licensed products shall be paid annually. In addition,
the Licensor shall supply PBG Water Solutions licensed products at prices agreed upon from time to time by the Licensor and PBG
Water Solutions. The Company and PBG Water Solutions didn’t generate any net revenue from or make any purchases of licensed
products during the three and six months ended June 30, 2018. The Company recorded a $12,500 and $25,000 license fee expense for
the three and six months ended June 30, 2018, respectively and made no payment of license fees as of June 30, 2018. The shareholder/licensor
owns 41.6% of the Company’s common stocks after giving effect to the PBG SEA.
5. Common stock and warrants
Common
stock
In April 2018,
the Company increased its authorized common stock from 70 million to 1 billion shares. The Company issued 46,839,439 shares of
common stock and 19,000 shares of Series A Convertible Preferred Stock to the shareholders of PBG Water Solutions pursuant to
PBG SEA. The 19,000 shares of Series A Convertible Preferred Stock were converted into 19,000,000 shares of common stock upon
increase in the number of shares of authorized common stock.
Warrants
On May 1, 2018, the Company issued
warrants to a shareholder pursuant to the Credit Loan Agreement (See Note 4). The warrants issued by the Company are classified
as equity. The fair value of the warrants was recorded as additional-paid-in-capital, and no further adjustments are made.
The fair value of the stock warrants
granted was estimated at $4,540,000 on the date granted using the Black-Scholes pricing model, with the following assumptions
used for the valuation: exercise price of $ 0.01 per share, average risk-free interest rate of 2.66%, expected dividend yield
of zero, expected lives of 3 years and an average expected volatility of 35%.
A summary of the status of the Company’s
warrants as of June 30, 2018 is presented below:
|
|
|
Number of
|
|
|
|
|
warrants
|
|
|
Warrants as at December 31, 2017
|
|
|
-
|
|
|
Warrants granted
|
|
|
50,000,000
|
|
|
Exercised, forfeited or expired
|
|
|
-
|
|
|
Outstanding at June 30, 2018
|
|
|
50,000,000
|
|
|
Exercisable at June 30, 2018
|
|
|
-
|
|
The
following table summarizes information about the Company’s warrants as of June 30, 2018:
|
|
|
|
Warrants
outstanding
|
|
|
Warrants
exercisable
|
|
Exercise
price
|
|
|
Number
outstanding
|
|
|
Weighted average
remaining
contractual
life (in years)
|
|
|
Weighted average
exercise price
|
|
|
Number
exercisable
|
|
|
Weighted average
exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.01
|
|
|
|
50,000,000
|
|
|
|
3
|
|
|
$
|
0.01
|
|
|
|
0
|
|
|
$
|
0.01
|
|
6. Income taxes
The Company
did not provide any current or deferred U.S. federal income tax provision or benefit for any of the periods presented because
it has experienced operating losses. When it is more likely than not that a tax asset cannot be realized through future income,
the Company must allow for this future tax benefit. The Company provided a full valuation allowance on the net deferred tax asset,
consisting of net operating loss carryforwards, because management has determined that it is more likely than not that the Company
will not earn income sufficient to realize the deferred tax assets during the carryforward period.
The Company
has not taken a tax position that, if challenged, would have a material effect on the financial statements for the six-months
ended June 30, 2018, or during the prior three years applicable under FASB ASC 740. The Company did not recognize any adjustment
to the liability for uncertain tax position and therefore did not record any adjustment to the beginning balance of accumulated
deficit on the balance sheet. All tax returns have been appropriately filed by the Company.
|
Income tax provision at the federal statutory rate
|
|
|
21
|
%
|
|
Effect of operating losses
|
|
|
(21
|
)%
|
|
|
|
|
-
|
%
|
Net deferred
tax assets consist of the following:
|
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Net operating loss carry forward
|
|
$
|
75,666
|
|
|
$
|
46,140
|
|
|
Valuation allowance
|
|
|
(75,666
|
)
|
|
|
(46,140
|
)
|
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
A reconciliation
of income taxes computed at the statutory rate is as follows:
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Tax at statutory rate (21%)
|
|
$
|
23,545
|
|
|
$
|
13,544
|
|
|
$
|
29,585
|
|
|
$
|
10,290
|
|
|
Increase in valuation allowance
|
|
|
(23,545
|
)
|
|
|
(13,544
|
)
|
|
|
(29,585
|
)
|
|
|
(10,290
|
)
|
|
Income tax expenses
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company
did not pay any income taxes during the three and six months ended June 30, 2018 or 2017.
7. Subsequent events
In accordance
with FASB standards, the Company evaluated subsequent events through the date it filed this report with the Securities and Exchange
Commission (“SEC”) and no subsequent events occurred that required disclosure in the accompanying consolidated financial
statements except for the following.
On July 31,
2018, the Company filed an amendment to articles of incorporation changing its corporate name to QHY Group. The amendment is to
become effective August 31, 2018, provided that prior to that date the Company has obtained approval from FINRA.
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